Pharma Continues To Move Forward With Alzheimer's Therapies

Includes: AMBS, ELN, LLY, MRK
by: Vineet Dutta

Since my previous article on Alzheimer's, we have seen some developments in the area of developing a successful treatment for Alzheimer's disease. For those unfamiliar, the unmet need in the area is large with some projecting a global market size for a highly effective treatment could be as much as $20 billion. That sizeable market has attracted the likes of big pharma, who are looking for ways to reinvent themselves and find new avenues of growth. Help for Alzheimer's patients has even come from the likes of Apple (NASDAQ:AAPL), with its Alzheimer's iPhone app, that provide families with fresh approaches to improving one's quality of life. With an estimated 5 million patients in the U.S. and 26 million worldwide, a success therapy would have significant positive developments from a societal and economic point of view.

Merck (NYSE:MRK) announced that it started a Phase II/III clinical trial designed to evaluate the safety and efficacy of MK-8931 versus placebo in patients with mild-to-moderate Alzheimer's disease. MK-8931 is Merck's novel investigational oral β-amyloid precursor protein site-cleaving enzyme (BACE) inhibitor, and is the first with this mechanism to advance to this stage of clinical research. The global, multi-center study, called EPOCH, is designed to initially evaluate the safety of MK-8931 in a cohort of 200 patients prior to advancing into a larger Phase III study.

Earlier this year, Merck researchers presented findings of a multiple dose Phase I study which demonstrated that MK-8931 can reduce cerebral spinal fluid (NASDAQ:CSF) β-amyloid by greater than 90% in healthy volunteers, without dose limiting side effects. An analyst said that the 90% reduction in CSF "impressive."

The big challenge for Merck is replacing the sales lost due to the patent expiration of Singulair. The patent exclusivity for the drug, which was the company's biggest seller in 2011, expired in August. The company said that sales are expected to collapse as a number of generics entered the market after the patent expiration. Singulair generated sales of $3.3 billion in 2011 so the company is looking for ways to replace the lost sales. Developing a successful therapy for Alzheimer's would sure help soften the blow.

The mean analyst target on the stock is $48.50, suggesting an upside of 11% on the shares. The stock trades at a forward P/E of 12 while Pfizer (NYSE:PFE), a close competitor, trades at a forward P/E of 11. The stock carries a hefty dividend yield of 4%.

Last Wednesday, Eli Lilly's (NYSE:LLY) shares fell after it announced that it plans to conduct an additional Phase 3 study of solanezumab in patients with mild Alzheimer's disease. Lilly said that based on recent meetings with the FDA, Lilly does not intend to submit a Biologics License Application at this time in the U.S. based solely on the existing analyses of data from the EXPEDITION studies. Lilly will continue to analyze and discuss the data from the two, Phase 3, double-blind, placebo-controlled solanezumab EXPEDITION studies with regulators globally to determine the regulatory paths forward in different regions. It is possible that different courses of action could be taken in different jurisdictions. Lilly expects to initiate this study no later than Q3 2013.

Although the additional trial was an obvious disappointment, the science behind the product candidate is still sound. A week before that announcement, the journal Neuron published a paper by a team of 13 Alzheimer's researchers at Lilly, which they think proves the science behind solanezumab is sound. That could be significant because Lilly, which is losing patent protection on its older neuroscience blockbusters Zyprexa and Cymbalta, has staked enormous resources on bringing an Alzheimer's drug to market.

In contrast to Merck, Lilly still has more time to look for ways to replace the sales for two of its blockbuster drugs, Zyprexa and Cymbalta. The company is now frantically looking for new therapies that it will be able to bring to market as the cash flow streams from Zyprexa and Cymbalta run dry. A therapy for Alzheimer's would fit that bill. The company trades at a forward P/E ratio of 13, a premium to both Pfizer and Merck. The stock was upgraded by Cowen despite the disappointing news for solanezumab for Alzheimer's.

Amarantus BioScience (OTCPK:AMBS) just announced that it licensed the LymPro Alzheimer's Disease Diagnostic Blood Test (LymPro) from Memory Dx (MDx). LymPro was designed with the purpose of diagnosing Alzheimer's in its mild to moderate stage, a population of patients currently being tested in numerous clinical studies with amyloid-beta targeting strategies. LymPro has completed two Phase 1 clinical studies in over 80 patients, showing 98% sensitivity and 96% specificity for Alzheimer's disease diagnosis. LymPro is ready to move into a Phase 2 validation study. If successful, LymPro can begin generating revenue as a laboratory developed test within 18 months of study initiation through commercial sales and through sales to companies performing Alzheimer's disease clinical research.

Other recent news for the company includes news on data for its trials. The company in late November announced that it successfully completed experiments demonstrating that MANF, its proprietary anti-apoptosis therapeutic protein, has an excellent diffusion profile in the striatum of rat brains. The striatum is located in the brain, and is partially responsible for proper movement as part of the basal ganglia network. The striatum becomes severely compromised in Parkinson's disease due to neurite retraction from dopaminergic neurons located in the substantia nigra. The data generated in this study show that when compared to GDNF, a neurotrophic factor currently in a Phase 2 clinical trial for Parkinson's disease, MANF had a significantly higher volume of distribution when delivered to the striatum.

In August, Elan's (NYSE:ELN) shares dropped after it announced devastating news for an Alzheimer's therapy after the company's partners ended most plans to develop an Alzheimer's drug following a second failure in a clinical trial. However, the company is forging ahead and just a few weeks announced that it enrolled the first patient in a Phase 2 clinical trial of ELND005 (Study AG201) for the treatment of agitation/aggression in patients with moderate to severe Alzheimer's disease. The company said that approximately 90% of Alzheimer's disease patients develop neuropsychiatric symptoms, and up to 60% develop agitation/aggression over the course of their disease. With no approved therapies for agitation/aggression in most countries, including the US, it is a major treatment problem in Alzheimer's disease.

The mean analyst target on the stock is $12.25 a share, suggesting upside of 22% on the shares. The company has two products on the market, Tysabri for Crohn's disease and Tysabri for relapsing forms of multiple sclerosis. Elan has a number of product candidates in its product pipeline and is expected to generate sales of $1.2 billion in 2012 with that figure growing to $1.41 billion in 2013.

Analysts have raised red flags about ELN recently with its drug Tysabri. The concerns have stemmed from sluggish demand for Tysabri as well as potential competition from Biogen (NASDAQ:BIIB). If either of those warning signs are legitimate, the stock may have further room to fall considering Tysabri is the biggest revenue generator for Elan. Figuring out ways to stabilize demand for Tysabri and keeping Biogen at bay are important for Elan so that the cash keeps coming in and the company is able to pour money into further R&D and grow its product portfolio.

One final note, Amarantus Bioscience is a micro-cap stock and micro-cap stocks are among the most risky stocks. Many micro-cap companies tend to be new and have no proven track record. Some of these companies have no assets or operations. Others have products and services that are still in development or have yet to be tested in the market.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.