In the world of the pharma patent cliff, Eli Lilly & Co. (NYSE:LLY) stands in a particularly vulnerable spot.
As the drugmaker awaits clinical trial results from a late-stage Alzheimer’s candidate, company leaders are faced with reports of decreasing revenue and more patent expirations. They are crossing their fingers that solanezumab, which most analysts lack confidence in, meets its benchmarks.
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Meanwhile, a competitor’s Alzheimer’s candidate is at the same point in the clinical trial process. Analysts suggest that success with solanezumab could make a secure future for Lilly in the Alzheimer’s treatment market. A failure, on the other hand, would set Lilly even further back in its battle against the patent cliff.
The generic hit
Lilly just reported that fourth-quarter profits were down 27 percent from a year ago. Full-year profits dropped 14 percent last year, thanks partly to patent expirations that allowed generic versions of the top-selling antipsychotic drug Zyprexa and chemotherapy drug Gemzar to go on the market in 2010 and 2011.
Lilly’s No. 2 drug, antidepressant Cymbalta, which accounted for about one-fifth of last quarter’s revenue, will face patent expiration in 2013, as will Evista for osteoporosis. These four drugs made up nearly half of Lilly’s revenue in 2010.
Lilly’s late-stage pipeline is now that much more important, as the company relies on continued sales growth of patent-protected and new drugs to accommodate for the losses.
Unlike most of its competitors facing similar patent expirations, Lilly is focused purely on pharmaceuticals. It has no medical device or consumer divisions to boost revenue when drug sales go south. Right now it’s standing at a major crossroads and waiting to see how a much anticipated late-stage drug to treat Alzheimer’s performs in trials. The company is hoping the drug will successfully delay the progression of mild to moderate Alzheimer’s.
Solanezumab
The highest profile drug in its pipeline is solanezumab, a monoclonal antibody that binds specifically to soluble amyloid beta cells and draws them away from the brain through the blood. In theory, this would block formation of amyloid plaque, which is thought to kill brain cells and cause Alzheimer’s disease in older adults.
As baby boomers age, this is a golden market for innovation, but there’s also a lot of risk. In Lilly’s case, amyloid plaque building is only thought to be the cause of Alzheimer’s; other research has pointed to the protein tau as a crucial factor. Also, reducing buildup with this method hasn’t yet been proven. Lilly is running two Phase III clinical studies that are expected to be completed later this year, with results reported in the second half of the year.
“It’s the classic high-risk, high-reward scenario,” said Ed Silverman, who’s been covering the pharmaceutical industry for 16 years and is the editor of Pharmalot. “It’s going to be nail biting for investors.”
If solanezumab shows even moderate success in these trials, it will likely usher in a new class of drugs that modifies the disease itself instead of treating the symptoms – contributing to a market that could be worth an estimated $14.3 billion in 2020.
Research firm Decision Resources estimates that in 2020, solanezumab and Pfizer, Elan and Johnson & Johnson’s Alzheimer’s candidate bapineuzumab could together earn $8 billion in the major markets if they’re shown to be safe and effective in delaying the progression of Alzheimer’s even by a few months.
“If there are statistically significant positive results, showing a benefit of any kind with this drug, Lilly shares could go up as much as 50 percent or more,” Leerink Swann analyst Seamus Fernandez told Reuters.
Other analysts point to semagacestat, Lilly’s last try at an Alzheimer’s drug. Dosing of the oral drug was halted in two Phase III studies in 2010 because it was associated with worsening patients’ memories and abilities to perform daily activities.
Like solanezumab, semagacestat was meant to reduce the production of amyloid beta plaques, but it did so by a different method–blocking an enzyme called gamma secretase that’s essential to the body’s production of amyloid beta plaques.
In January 2011, Lilly CEO John Lechleiter reported that a patient in clinical trials of solanezumab developed temporary but potentially dangerous brain swelling. The trials are still blinded, so investigators do not yet know whether that patient was taking the drug or a placebo. Brain swelling has also been a concern with high doses of rival drug bapineuzumab.
J&J, Pfizer and Elan’s bapineuzumab
To add to the pressure, solanezumab is running neck-in-neck with bapineuzumab. Data for both are expected around the same time in Q3.
Tim Anderson of Bernstein Research gave solanezumab a 20 percent chance of success, according to Barron’s, lower than most estimates given to bapineuzumab. But Lilly’s drug would have a bigger payoff if it does succeed, since Lilly has smaller market values than its Big Pharma competitors and fully owns solanezumab.
“The difference is there’s so much more at stake, because Lilly is nowhere near as diversified as Pfizer and J&J,” Silverman said. “This is much more significant for Lilly. It still represents a huge opportunity for those companies, but they can absorb a disappointment much easier than Lilly can.”
JP Morgan analyst Chris Schott wrote in a recent report that if solanezumab doesn’t succeed Lilly would be “unable to meaningfully offset the loss of its core franchises to generic entry.”
Lilly’s plan
Lilly officials say they’re prepared to weather the storm. They’ve reorganized and reduced production costs, let go at least some of the 5,500 workers they planned to cut, and recently announced that employees in most countries, including top management like CEO John Lechleiter, would not receive raises in 2012.
“Today, Lilly has 70 potential new medicines in its clinical pipeline, providing a solid substrate to support a series of launches between 2011 and 2017,” said Executive Vice President of Science and Technology Jan Lundberg in a June 2011 press release.
Aside from solanezumab, Lilly has a dozen other drugs in late-stage trials, including treatments for diabetes, cancer and depression, all potentially huge markets, plus other Alzheimer’s candidates in early-stage studies. The U.S. Food and Drug Administration also just approved Jentadueto, Lilly and Boehringer’s type 2 diabetes tablet that combines two drugs into a single pill.
Sales are growing in emerging markets, especially in Japan. Also, the Animal Health business spiked 21 percent last year, and the biologics segment is growing as well.
Lilly’s latest move is a global initiative called Innovation Starts Here that will partner the company’s scientists with academic researchers to boost the company’s pipeline and expand its R&D investments in Europe. It’s also expanding its manufacturing facility in Cork, Ireland, and hiring up to 200 new employees there.
Will all of these things be enough to absorb the impact of the patent dropoff?
“If the (Alzheimer’s) opportunity fails, we believe Lilly may be forced to reconsider its business strategies in the next year,” Deutsche Bank analyst Barbara Ryan wrote in an investor note last month. “On the flip side, a clearly positive outcome for solanezumab would significantly improve Lilly’s long-term growth outlook.”
[Photo by flickr user Orin Zebest]
