Lilly's pipeline failures concern analysts

June 17, 2013

Eli Lilly and Co.’s decision to halt trials of an experimental Alzheimer’s drug last week is its third R&D failure in as many months. That recent string of misses raises pressure on Lilly to hit with the leading stars in its pipeline—most notably its diabetes drugs.

Investors shrugged at the Indianapolis-based drugmaker's June 13 announcement that a beta secretase inhibitor designed to slow Alzheimer’s disease had failed a Phase 2 clinical trial due to liver problems in patients. The drug still had a long way to go before it ever could have hit the market.

But the pattern is a bit disconcerting to some Wall Street analysts. In May, Lilly scuttled a Phase 3 trial of enzastaurin, which was aimed to treat lymphoma. And in February, Lilly pulled the plug on a Phase 3 trial of tabalumab, a highly touted treatment for rheumatoid arthritis.

“Late stage clinical failures such as enzastaurin and tabalumab in [rheumatoid arthritis], while small opportunities, are adding up and raise questions about LLY’s financial discipline," wrote Jami Rubin, a pharmaceutical analyst at Goldman Sachs, referring to the company by its ticker symbol.

She said in her May 10 note to investors that "failures like these make us wonder if LLY is pushing too many high-risk drugs into phase 3."

Andrew Baum, a Citi Research analyst, said the additional failure of the beta secretase inhibitor now reduces reasons to own Lilly stock.

“An investment thesis on LLY’s is now increasingly dependent on [operating expense] management and evacetrapib for cardiovascular disease,” Baum wrote in a June 14 research note. Investors are, of course, aware that Lilly will see billions in revenue disappear next year after the patent expirations of its antidepressant Cymbalta and its cancer drug Evista.

Evacetrapib is a drug designed to lower bad cholesterol and raise good cholesterol in patients at risk of serious heart disease. Analysts expect that, if it proves effective, its sales will reach blockbuster status.

But what really has investors’ attention now are Lilly’s experimental diabetes drugs and one cancer drug.

Lilly is due to release new clinical data on June 22 about dulaglutide, a once-weekly injection that Lilly thinks will outperform similar drugs already on the market, including Victoza, made by Denmark-based Novo Nordisk A/S.

Novo’s share price declined Monday after Bank of America Merrill Lynch analyst Sachin Jain cut his rating on Novo because he thinks Lilly’s dulaglutide will steal sales from Victoza. Some analysts predict dulaglutide could hit $1.2 billion in sales by 2018.

“Overall we believe headline data for dulaglutide suggests a profile that may be better than Victoza,” Jain wrote in a note to investors, according to Bloomberg News. “Our forecasts now assume dulaglutide launch in 2015 and Victoza slowly declining thereafter.”

In morning trading, Novo shares fell as much as 3.9 percent on U.S. markets. Lilly’s share price, meanwhile, rose as much as 1.9 percent.

Lilly also will release new data about empagliflozin, an oral diabetes medicine, and two new kinds of insulin. Collectively, analysts think those drugs could reach about $2 billion in annual sales by 2018.

In the third quarter of this year, Lilly is expected to announce Phase 3 results of its cancer drug ramucirumab, which some expect to compete with Avastin as a treatment against several kinds of cancer.

Analysts estimates for 2018 sales for that drug range from $600 million to $1.3 billion.


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