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The Dose - JK Wall

Welcome to The Dose, which tackles the finances behind local health care and life sciences and points to the most interesting national analysis. Your host is J.K. Wall.

Health Care & Life Sciences / Life Science & Biotech

Lilly faces moment of truth this week

July 20, 2015

This week is big for Eli Lilly and Co.

On Wednesday, the Indianapolis-based drugmaker will release new data from patients taking its Alzheimer’s drug that could show whether the drug has, indeed, slowed the progression of their disease.

That will show investors whether the 45 percent rise in Lilly’s stock price over the past year is justified.

And, by the way, Lilly will release its second-quarter financial results on Thursday, showing whether its sales are enjoying the “return to growth” Lilly executives have long promised.

Lilly’s first-quarter sales registered an eight year low—due to the 2011 and 2013 patent expirations on a pair of $5-billion-a-year blockbusters, Zyprexa and Cymbalta. But Lilly expects new diabetes drugs and its acquisition of Novartis Animal Health to burnish its numbers going forward.

The Wall Street Journal counseled skepticism—even if Wednesday’s announcement is positive.

“Eli Lilly is the big pharmaceutical company that, due to its Alzheimer’s program, suddenly trades like a biotechnology stock. Investors should be poised to sell,” wrote Charley Grant in the Journal’s Heard on the Street column.

Grant noted that biotech firm Biogen Inc. saw its shares rise 40 percent leading up its March announcement of positive early-stage results for an Alzheimer’s drug. That news sent shares up another 10 percent that day. But since then Biogen’s stock price has dwindled by 15 percent, partly due to rising concerns about the drug’s potential side effects.

Lilly’s Alzheimer’s drug, known as solanezumab, failed in two previous clinical trials when it was given to patients with both mild and moderate Alzheimer’s disease.

But Lilly noticed that mild patients did see slower rates of mental decline. So it is conducting a new clinical trial that should wrap up near the end of 2016.

In the meantime, Lilly has continued to give solanezumab to nearly 1,300 patients from the failed trials, including some who were taking a placebo but have since switched to solanezumab.

So next month, Lilly will report results that compare those late-starting patients with the early-starting ones. If that comparison shows the early-starting patients continue to have better mental function than the late-starters, that would suggest solanezumab does, indeed, alter Alzheimer’s disease—rather than providing temporary relief of symptoms.

Current Alzheimer’s medicines, such as Aricept, only relieve the symptoms of the disease for a time.

If Lilly’s data show solanezumab is working, it would add to growing hopes among scientists and investors that began building after Biogen’s results were announced, noted a lengthy piece in the Financial Times.

Both companies’ drugs remove the protein amyloid beta from the brain. According to the leading theory of Alzheimer’s, the disease is caused by clumping of amyloid protein into brain cell-killing plaques. And both companies’ trials showed a slower pace of mental decline when the drugs were given to patients in the early stages of Alzheimer’s disease.

“It is a long time since we’ve seen positive results of this type,” said Thomas Wisniewski, neurology professor at New York University’s School of Medicine, told the Financial Times.

But Morgan Stanley analyst David Risinger decided the Lilly euphoria has reached its limits. He downgraded his rating on the company on July 15, causing the stock to fall slightly from its $90-per-share peak.

“Eli Lilly shares have moved higher as investor hopes for Alzheimer’s and cholesterol candidates have grown,” Risinger wrote. “At Lilly’s current stock price, shares appear to factor in pipeline enthusiasm for two blockbuster candidates—solanezumab for Alzheimer’s and evacetrapib for cholesterol.”

If both those drugs succeed and hit the market quickly, Risinger said, Lilly's stock price could rocket up to $122 per share. But if they both fail, Lilly's shares could plummet to $69 apiece.

Wednesday will provide the first clue as to which course Lilly will follow.

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