Sunday Strategist: A Calculated Gamble on Brain Diseases

(Bloomberg Businessweek) -- If you want a quiet life, stay away from the biopharmaceutical industry. The search for drugs for diseases like Alzheimer’s is costly and frustratingly unpredictable. The companies and their investors persist because the payoff can be enormous.

Consider Alkermes, a Dublin, Ireland-based company with a research lab outside of Boston and a manufacturing plant in Ohio. It makes drugs for schizophrenia and addiction. After it went public in 1991 its stock zoomed to $96 in 2000, fell below $5 in 2002, climbed back to $80 in 2015, and is now trading around $20. In October the company announced its 19th consecutive quarterly loss and laid off 160 employees, about 7% of the workforce.

Instead of retreating, Alkermes went on the offense. On Nov. 18 it announced an agreement to buy privately held, Boston-based Rodin Therapeutics Inc. It’s paying $100 million in cash upfront, with payments of up to $850 million more if Rodin’s drugs in development reach certain milestones.

I talked to Blair Jackson, Alkermes’ senior vice president for corporate planning, to understand the strategy behind the bet. What looks like taking on a big risk is actually about mitigating risk, he told me.

“Projects cost hundreds of millions of dollars and can take over a decade. As you’re investing you have to recognize that there’s a risk that all that the investment can lead to nought,” he said. That can be fatal for a company that puts all its efforts into a single promising molecule that fails to gain approval from the Food & Drug Administration. 

Diversification is the key to reducing risk, Jackson said. Alkermes’ press release about the Rodin deal repeatedly cites the value of Rodin’s “platform.” It's a system for generating multiple drugs with a variety of characteristics to go after a range of related diseases. Rodin has a platform for drugs that could strengthen the synapses in the brain, which could be useful against Alzheimer’s disease, Huntington's disease, frontotemporal dementia, and depression. “This gives us multiple shots on goal,” says Jackson.

Another risk-mitigating aspect of the deal is that Rodin has developed a big set of biomarkers—indicators of whether a particular compound is having an effect. The biomarkers "can predict whether it’s going to perform in later-stage trials," Jackson said. "It gives you more confidence that you're going down the right path."The people who work in biotech and the investors who put money into it are a self-selected bunch with a high tolerance for uncertainty. But even they crave whatever certainty they can get. Said Jackson: “It’s about diversification, mitigating risk, about using signals early on in development that give you confidence that you’ll have success later on.”

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To contact the editor responsible for this story: Silvia Killingsworth at skillingswo2@bloomberg.net

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