Alkermes (ALKS) is facing "significant" near-term headwinds to its existing franchises and royalties, RBC Capital Markets said in a Thursday note.

The firm expects revenues from Alkermes' existing business, excluding potential contributions from its orexin program, to decline to $600 million by the mid-2030s.

The anticipated decline underscores the importance of Alkermes' orexin program, which RBC estimates could generate over $1.5 billion in revenue and provide visibility into the company's longer-term growth. However, rather than driving substantial expansion, RBC sees the program as likely stabilizing the business around 2030.

"With success largely expected in the increasingly crowded narcolepsy space, we wait for more derisking data to better benchmark what the peak opportunity could be," according to the note.

While potential orexin updates could act as catalysts in the near to mid-term, RBC said falling revenue and earnings per share will continue to weigh on the stock. The firm believes shares are currently "fairly" valued given the balance between pressures on the core business and the orexin program's risk and reward.

RBC initiated coverage on the company with a sector perform rating and a $40 price target.

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