The AIR's Knocked Out of Alkermes

Drug developer Alkermes (Nasdaq: ALKS) announced yesterday that it would be slimming down its operations and cutting jobs. This decision followed the shuttering of its phase 3 AIR inhaled-insulin program with Eli Lilly (Nasdaq: LLY).  

Last week, Lilly became the last of the three big pharmas with inhaled-insulin programs to close down its work in that area. Novo Nordisk (NYSE: NVO) stopped its inhaled-insulin program (at least temporarily) in January, and Pfizer (NYSE: PFE) terminated its inhaled-insulin program after recording miserable sales of Exubera in the nearly two years it was on the market. 

Lilly and Alkermes had been working together on AIR insulin since 2001 and had been testing their AIR inhaled-insulin program in phase 3 trials since 2005. The announcement last week eliminated the need for Alkermes to use its manufacturing facility to supply this drug for clinical testing and future commercial use, which led to the layoffs and cost-cutting at the company.

As with its very similar drug-delivery counterpart, Nektar Therapeutics (Nasdaq: NKTR) (Pfizer's Exubera partner that got the boot), there is still a lot to like about Alkermes -- even with the failure of its AIR insulin program and the slow sales growth of its Vivitrol alcohol-dependence treatment. For instance, Alkermes received a bit of competitive good news when Eli Lilly's extended-release Zyprexa failed to get regulatory approval last month.

Lilly was a partner with Alkermes for AIR insulin and an extended-release diabetes drug, but Lilly's long-acting Zyprexa antipsychotic drug would have competed (probably very effectively) with Risperdal Consta, from Johnson & Johnson and Alkermes. Now that Alkermes doesn't have to worry about having its royalty revenue growth smacked down thanks to long-acting Zyprexa, and now that the company has cut some of its spending, we could be in for a nice earnings-forecast treat when Alkermes updates its fiscal 2009 guidance in May.