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Alkermes plc (ALKS - Analyst Report) recently announced the approval of a restructuring plan by the board of directors related to its manufacturing facility at Athlone, Ireland. Alkermes Pharma Ireland Ltd., a wholly owned subsidiary of Alkermes, will stop manufacturing certain older products whose demand has waned due to generic competition in the market.

It was estimated that if produced these products would contribute less than 5% to fiscal 2013 total revenues. Alkermes will also cut down on its employee headcount by roughly 130 employees. 

Under this plan, Alkermes expects to incur a one-time cash restructuring charge of roughly $12.5 million which will be taken into account in fiscal quarter ended, Mar 31, 2013. Additionally, the company expects to incur non-cash expenditure in the form of depreciation of a few manufacturing assets of $10 million in fiscal 2014 and $7 million in fiscal 2015.

By fiscal year 2016 and beyond, annual cost savings from these restructuring initiatives are forecast in the range of $15–$20 million.

Our Take

We find this restructuring plan prudent as it will eliminate some of the uneconomic products from the company’s portfolio and will strengthen Alkermes’ product portfolio.

Alkermes, in fact, boasts a diversified pipeline. Interesting candidates include aripiprazole lauroxil (phase III, data expected by the end of calendar 2013) for schizophrenia and ALKS 5461 (a combination of ALKS 33 and buprenorphine) for treatment-resistant depression (phase II, data expected in the second quarter of calendar 2013).

Alkermes carries a Zacks Rank #3 (Hold). Right now, Cleveland BioLabs, Inc. (CBLI - Snapshot Report), Athersys, Inc. (ATHX - Snapshot Report) and Osiris Therapeutics, Inc. (OSIR - Analyst Report) look more attractive with a Zacks Rank #1 (Strong Buy).

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