Failure of Lilly’s Alzheimer’s drug not a big surprise to analysts

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Investors pummeled Eli Lilly and Co.’s stock Wednesday on the news that its experimental drug for Alzheimer’s disease failed to help patients, but a chorus of pharmaceutical analysts say they were not surprised by the setback.

Lilly shares had plummeted about 13 percent in midmorning trading, even as analysts said they had low hopes for solanezumab, a drug designed to slow the progression of the neurodegenerative disease that affects 47 million people.

“We’ve said solanezumab was a very high-risk program that was likely to fail,” wrote Dr. Tim Anderson, a drug analyst at Sanford C. Bernstein, in a note to investors Wednesday. He also questioned whether the clinical trials were using a high enough dose of the drug to make a difference, and whether Lilly has chosen the dose for medical or regulatory reasons.

“We’ve said for a long time that they may have given too low of a dose, which could impact results,” he wrote. “Lilly never seemed to have a great answer for why they picked the solanezumab dose they did. In our view, they likely wanted to piggy-back off of the data from the earlier trials … for regulatory purposes.”

But Dr. Eric Siemers, Lilly’s senior medical officer for the study, defended the dosages in conference call with reporters. He said earlier-stage trials results showed a 34 percent  decline in slowing of cognitive functions. “We felt the dose was adequate,” he said.

Analysts seemed unconvinced, however, that the late-phase trial, which treated more than 2,000 patients with a mild form of Alzheimer’s disease, could have met its goal. Analyst Marc Goodman at UBS had predicted the drug’s chances of success at just 10 percent. “We believed this was a highly risky trial,” he said in a research note.

John Scotti, an analyst at Evercore ISI, said investors appeared “roughly just above a coin flip” on whether the drug would hit its primary endpoint of significantly improving cognition in patients with a mild form of Alzheimer’s disease.

Last month, Lilly said the patients treated with the drug didn’t show a meaningful slowing of cognitive decline, compared to those who got a placebo. That dampened optimism for many analysts and Alzheimer’s specialists, who said they gave solanezumab a low chance of success.

Even so, the drug would have provided a huge shot in the arm for the Indianapolis-based drugmaker. Goldman Sachs had predicted annual sales of $2.6 billion for the drug by 2025, if it was successful.

Still, some analysts said the failure of the drug, called “sola” for short, was important but not critical to Lilly’s future.

That’s because the company has at least six more big drugs in late-stage testing, with projected launches through 2018, including treatments for diabetes, rheumatoid arthritis, soft tissue sarcoma, migraine headaches and breast cancer. Those products could generate $10 billion a year by 2025, according to Goldman Sachs drug analyst Jami Rubin. That’s on top of recent launches of treatments for cancer, diabetes, psoriasis and other conditions that could generate another $11 billion annually by 2025.

“We see a range of new product opportunities at Lilly that should support the company’s growth targets,” wrote Chris Schott, a drug analyst at J.P. Morgan & Co.

Several others echoed that theme: “Despite the sola failure, Lilly still expects to grow average annual revenue by at least 5 percent between 2015 and 2020,” wrote drug analyst Jeffrey Holford of Jeffries & Co. “Over that time frame, the company expects to also increase margins and provide annual dividend increases.”

Still, it’s a stinging setback for Lilly, which has spent more than $3 billion over the past 27 years trying to find a treatment for a disease that is the sixth-leading cause of death in the United States. There is no effective treatment. Existing drugs only alleviate symptoms temporarily.

And it’s at least the second major failure of a promising Lilly drug for Alzheimer’s in recent years. The company pulled the plug on another compound, semagacestat, in 2010, after determining that the treatment did not slow the disease’s progression. The drug was linked with a worsening of the ability to perform daily activities, and a higher risk of skin cancer.

“It’s heartbreaking,” David Ricks, Lilly’s incoming CEO, told reporters, saying that his scientists were upset by the findings. “People come here every day to make a difference.”

He pointed out that the United States has spent $300 billion on researching the disease “and there’s almost nothing that slows it down.” He said Lilly still has six other compounds in the pipeline to treat Alzheimer’s disease, and remains committed to finding a breakthrough. More than 100 compounds have failed to show they could slow the condition that robs patients of their minds and eventually their ability to care for themselves.

“It’s hard. It’s expensive,” Ricks said. “That’s why it’s worth it when it works.”

“We remain committed to Alzheimer’s research,” Dr. Siemers said.

The setback also raises questions about whether researchers are using the right approach to target the disease. The focus of Lilly and several other drugmakers has been in developing drugs that attack a buildup in the brain of a protein called amyloid beta. The beta clumps together to form sticky plaques. Some researchers have said the amyloid is merely the brain’s way of protecting itself from the disease and that trying to reduce it will only cause more harm.

Several leading Alzheimer’s disease researchers have said drugmakers should focus instead on dealing with tangles, or twisted fibers of a protein in the brain called tau, as a more promising approach. Lilly officials said Wednesday they are still examining data from the latest trials and were unprepared to comment further about the outcome.

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