Alkermes stock maintains Overweight rating on safety profile of Orexin agonists for sleep/wake space

On Wednesday, Piper Sandler maintained its Overweight rating on Alkermes (NASDAQ:ALKS) and reaffirmed a $37 price target. The firm's stance is influenced by the potential of ALKS-2680, an orexin 2 receptor (OX2R) agonist currently in development for the treatment of sleep/wake disorders.

A leading sleep expert highlighted the drug's transformative potential across narcolepsy subtypes and idiopathic hypersomnia (IH), suggesting it could significantly improve wakefulness compared to existing treatments.

The expert anticipates that 75%-80% of narcolepsy type 1 (NT1) patients could be treated with an OX2R agonist, with a possible 40%-50% of narcolepsy type 2 (NT2) patients and a similar proportion of IH patients also benefiting from the therapy. The safety and tolerability profile of the drug is considered relatively benign, which could further support its use as a monotherapy for these conditions.

Alkermes' ALKS-2680, along with Centessa's ORX750, is being developed to treat a broader range of conditions including NT1, NT2, and IH, which may provide a competitive edge over Takeda's TAK-861 that is focused solely on NT1. The expert believes that the first OX2R agonist to reach the market could gain a significant commercial advantage, given the substantial number of patients with NT2.

Alkermes' current stock price stands at $31.31, with the price target based on a 14x multiple of the estimated 2026 enterprise value to EBITDA ratio. The calculation assumes a cash position of $928 million, a debt of $289 million, and approximately 170 million shares outstanding. The target is discounted by 10% for a period of 1.5 years. The company faces risks including competition and payer challenges for its product Lybalvi, as well as research and development risks associated with ALKS-2680.

Other companies in the space, such as Avadel (NASDAQ:AVDL), Harmony (JO:HARJ) Biosciences (NASDAQ:HRMY), and Jazz Pharmaceuticals (NASDAQ:JAZZ), also maintain Overweight ratings, with price targets of $24, $48, and $163, respectively. According to InvestingPro data, Avadel shows impressive gross profit margins of 92% and analysts project sales growth for the current year. The company's stock currently trades near its 52-week low of $9.41, with analyst price targets ranging from $20 to $27. These targets are based on similar valuation multiples and discounted cash flow analyses, considering each company's financial position and the risks associated with their respective products and development pipelines.

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In other recent news, Avadel Pharmaceuticals (NASDAQ:AVDL) has been navigating significant developments. The company reported strong third-quarter results with $50 million in net revenue from its narcolepsy medication, LUMRYZ, and a positive adjusted EBITDA of $6.1 million. The FDA has also extended approval for LUMRYZ's use to pediatric narcolepsy patients aged seven and older.

However, the company's Chief Commercial Officer, Richard Kim, announced his resignation effective December 31, creating a potential challenge for the company. Despite his departure, Kim will remain eligible for the 2024 incentive compensation.

In terms of analyst notes, H.C. Wainwright reaffirmed a Buy rating on Avadel but reduced the stock price target from $27.00 to $25.00 following the third-quarter results. The firm believes Avadel's stock is significantly undervaluing LUMRYZ, even with less than 25% projected peak market share.

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