The fallout continues at Alkermes Inc., which following a series of recent setbacks reported a 23 percent reduction in its work force.

"This action is based on current expectations of the financial impact of the delay in the launch of Risperdal Consta," said Rebecca Peterson, the company's director of corporate communications. "Management is aligning staff in an effort to prepare for profitability and adjusting its cost structure accordingly."

The Cambridge, Mass.-based firm said the staff reduction would allow it to align cost structure with near-term revenues and better focus on product development. The cutbacks lowered Alkermes' work force across all areas of the company by 122 employees, dropping to 419 workers.

Alkermes said it expects to save about $20 million to $25 million this fiscal year, excluding restructuring charges, and $40 million to $45 million in fiscal 2004. It will record a one-time restructuring charge ranging from $3.5 million to $4 million in the second quarter ending Sept. 30. Affected employees' severance packages include severance pay, continuation of benefits and outplacement services.

In its most recent quarterly report, for the three months ended June 30, Alkermes recorded a net loss of $45.3 million, or 70 cents per diluted share, compared with a net loss of $8.3 million, or 13 cents a diluted share, a year earlier. Excluding a $24.2 million noncash charge related to an equity investment in Reliant Pharmaceuticals LLC, Alkermes said it lost $21 million, or 33 cents a share.

The investment and alliance with Reliant remains in place, though Alkermes two weeks ago backed out of an outright merger agreement. Three months after agreeing to make an equity investment worth about one-fifth of Reliant, Alkermes decided to purchase the remaining 81 percent of the Liberty Corner, N.J.-based firm in a stock deal worth about $934 million. (See BioWorld Today, March 22, 2002.)

On Aug. 14, though, the companies formally called off the agreement because of market conditions. Alkermes said no payments were triggered by the termination, and each company will bear its own legal and transaction fees. The termination does not affect the alliance in which Alkermes made its equity investment in Reliant, and Alkermes CEO Richard Pops retains his seat on Reliant's board.

But Peterson said the abandoned transaction did not factor into the decision to downsize.

The canceled agreement followed a denial from the FDA for its Risperdal Consta. Alkermes' partner, Janssen Pharmaceutica Products LP, said the FDA issued a non-approvable letter for the twice-monthly injectable form of the anti-psychotic drug Risperdal. Janssen, of Beerse, Belgium, is a wholly owned subsidiary of New Brunswick, N.J.-based Johnson & Johnson.

Janssen said it is continuing to work with the FDA, but declined to provide specific timeline details.

"We met with the FDA to clarify their questions and make sure we understood them fully, and now we are preparing to pull the answers together and get back to them," said Melissa Katz, Janssen's director of public relations.

The drug uses Medisorb, Alkermes' injectable, extended-release, drug delivery technology that encapsulates drugs into small polymeric microspheres that degrade slowly and release the medication at a controlled rate following injection. At the time, a Janssen spokeswoman said the FDA questioned preclinical data, later surmised by an analyst to be the result of an increased cancer risk in rodents due to hyperprolactinemia. (See BioWorld Today, July 2, 2002.)

That news sent Alkermes' stock tumbling 68 percent. Its price rebounded slightly as the schizophrenia drug was later approved in Germany and the UK - and more recently in Mexico and Austria - but the shares have never fully recovered to their 52-week high of $31.39. Alkermes' stock (NASDAQ:ALKS) closed at $9.47 Monday, down 60 cents.

Alkermes said its streamlined staff would now focus on its late clinical programs and those that involve the most productive collaborations.

Aside from the Risperdal Consta collaboration, Alkermes is moving forward with South San Francisco-based Genentech Inc. in a Phase III trial with a formulation of Nutropin Depot to treat adult growth hormone deficiency. The drug already is on the market to treat pediatric growth hormone deficiency.

Alkermes and Indianapolis-based Eli Lilly and Co. are in multiple clinical trials for an inhaled insulin formulation. The two also have partnered on an inhaled formulation of human growth hormone, with Phase I studies completed.

On its own, the company is continuing a Phase III study of Vivatrex to treat alcoholism.

Alkermes' other sustained-release technology, ProLease, also provides controlled release of injectable drugs lasting several days to several weeks. The company also develops pharmaceutical products based on its AIR pulmonary technology.