US-based drug delivery specialist Alkermes is cutting its losses following Eli Lilly's decision to scrap the companies' joint development programme for inhaled insulin.
Alkermes has announced a restructuring that involves some 150 redundancies and the closure of its commercial manufacturing facility for AIR products in Chelsea, Massachusetts.
The company was set to be the exclusive commercial manufacturer and supplier of insulin powder for AIR Insulin under an agreement signed with Lily in December 2006. That arrangement ended with Lilly's recent withdrawal from the inhaled insulin programme after a seven-year effort that brought AIR Insulin as far as Phase III clinical trials scheduled for completion this year.
Part of the supply agreement was that Lilly would fund all operating costs for the manufacture of AIR Insulin products at the Chelsea facility, as well as funding, designing, constructing and validating a second production line at the site.
Lilly had already made an initial investment in the 90,000 sq ft facility under an agreement signed with Alkermes in February 2002. Built at an estimated cost of around $40m, the Chelsea facility was opened in 2003 to manufacture product candidates, including AIR Insulin, based on Alkermes' proprietary AIR pulmonary technology.
It included a 40,000 sq ft facility for clinical manufacturing of pulmonary products, although Alkermes also has facilities that can manufacture clinical supplies of its pulmonary and injectable extended-release products at the company's headquarters in Cambridge, Massachusetts. Alkermes' inhalation devices are produced by a contract manufacturer.
Last year the company committed to a substantial expansion of the Chelsea site at 190 Everett Avenue in readiness for commercial production of AIR Insulin, with the help of $4.2m in infrastructure funding from the state of Massachusetts and with the promise to create around 70 more jobs at the facility. The aim was to have about 150 staff in place by the end of 2008.
That was before Lilly pulled the plug on the joint development programme, citing growing uncertainties ion the regulatory climate for inhaled insulin products and the waning commercial prospects that had already seen Pfizer's Exubera and Novo Nordisk's AERx inhaled insulin system retreat from the marketplace.
Alkermes said it was implementing "a new operational cost structure to align our expenses with near-term revenues, which we will anticipate will be lower than expected due to Lilly's termination of the inhaled insulin programme".
The flexibility of the company's business model "allows us to adapt our cost structure while maintaining our ability to develop innovative products of our own", added president and chief executive officer (CEO) David Broecker.
The lay-offs, which take effect this week, amount to roughly 18 per cent of Alkermes' total workforce. Broecker said Lilly's exit from the AIR Insulin programme had "forced us to make difficult choices about the optimal size of the organisation". Nonetheless, Alkermes' "financial foundation remains strong, and we are focused on maintaining this strength moving forward", he commented.
The company does not expect the restructuring to produce any savings in the fiscal year due to end on 31 March. It anticipates a restructuring charge of $5-$10m in the fourth quarter of 2008 associated with the redundancies and facility-related expenses. There is also likely to be an impairment charge of up to $15m in the quarter related to fixed assets at the Chelsea facility.
Alkermes is projecting cost savings in the range of $15m to $20m from the restructuring in fiscal 2009.
The company may have lost its commercial manufacturing base for AIR products but it has not lost faith in the pulmonary delivery technology. Spokesperson Jennifer Viera said Alkermes remained confident about the prospects for the AIR system in other applications.
These include ALKS 27, an inhaled formulation of trospium chloride for the treatment of chronic obstructive pulmonary disease (COPD) that Alkermes is developing in collaboration with Indevus Pharmaceuticals. The product, which has potential for once-daily dosing, is in Phase II clinical trials and is "still going strong", Viera noted.
Further down the development pipeline is another tie-up with Eli Lilly. This is for AIR PTH, an inhaled formulation of Lilly's parathyroid hormone (PTH).
Lilly's recombinant PTH, Forteo (teriparatide (rDNA origin) injection), was approved in the US in 2002 for the treatment of osteoporosis in postmenopausal women who are at high risk of bone fracture, and to increase bone mass in men with primary or hypogonadal osteoporosis who are at high risk of fracture.
Alkermes is still evaluating whether the AIR Insulin programme has any life left in it - although, as Viera pointed out, "we're not planning on doing any commercial manufacturing right now". She added that the "current environment is not that favourable" for an inhaled insulin product.
All intellectual property rights licensed to Lilly under the AIR Insulin agreement have now reverted to Alkermes. The company also has the right to purchase all regulatory submissions and related data owned by Lilly that were generated under the agreement.