Recently, Eli Lilly (LLY) announced that it had formed a partnership deal for $2 billion to get its hands on an experimental drug for treatment of Alzheimer's disease. This deal marks for a major push for the company to develop a treatment for this neurological disease where treatment options are highly limited. Especially, when you consider the many trial failures have happened over the last few years with other drugs. It's a big gamble, but that isn't stopping it from developing a drug that could potentially slow or halt the progress of the disease.
Eli Lilly is willing to commit up to $2 billion for this deal. However, it won't all come at once. But the biotech that Eli Lilly partnered with AC Immune (ACIU) is getting some funds in an upfront transaction. Then, there is the potential to eventually earn the rest of the cash as milestones are met. Eli Lilly will pay ACIU an upfront payment of $80 million. There is also a $50 million note that can be converted to equity. On top of that, there are some near-term milestones that could yield $60 million as well. What's most impressive is that Eli Lilly has chosen to advance this drug known as ACI-3024 when it is only in the preclinical stages of development. You may have heard of other pharmaceutical companies targeting beta-amyloid proteins to treat Alzheimer's disease. An example of a company targeting beta-amyloid proteins to treat Alzheimer's would be Biogen (BIIB) and its partner Eisai (OTCPK:ESALY). These companies are forging forward with their beta-amyloid drug aducanumab in phase 3 studies. Some data may be reported in 2019, or at least by early 2020. Tau, like beta-amyloid, is a protein that accumulates inside brain cells. This causes the loss of neurons, which ultimately slowly leads to cognitive decline.
Leading The Charge
It is quite impressive that Eli Lilly is still leading the charge toward a different protein target, despite its previous setbacks. One of the biggest setbacks it suffered was noted back in 2016, when it announced a phase 3 trial failure using an anti-amyloid drug known as solanezumab. It didn't fare as well as Biogen and Eisai did when it came to targeting the beta-amyloid protein. Eli Lilly was forced to abandon the program in the wake of this phase 3 failure. However, this latest move proves how much it is willing to eventually pay out in the hopes of obtaining a newly approved treatment for Alzheimer's.
It is important to point out that the deal was set up in a very good way. I state this because it was set up in a way where the $2 billion will come as potential milestone payments. In other words, much less risk involved this way than necessary. All Eli Lilly had to pay was an upfront payment of $80 million.
This was a smart move, especially when you look at it in the aspect that there is a 99% failure rate in Alzheimer's studies. It has been a quite big issue for many years now, where pharmaceutical companies can't quite nail down the cognitive decline associated with the disease compared to placebo. It does make sense as to why Eli Lilly and many other companies are working so hard to achieve a successful outcome for this patient population. It will definitely be good for patients, because there will finally be a new drug approved to potentially halt the cognitive decline, associated with the disease, observed in patients. However, the more promising aspect is that the global Alzheimer's market is expected to reach $14.8 billion by 2026. It is a large market. What discourages most biotechs from pursuing it is the high failure rate. I guess the case can be made that big pharmaceutical companies have established pipelines. Therefore, they can take these big risks.
Eli Lilly wants to advance an Alzheimer's drug all the way through FDA approval if possible. It doesn't have to commit much initially, as it only paid a small upfront payment to AC Immune to license the Tau drug known as ACI-3024. The hope here is that targeting the Tau protein associated with Alzheimer's will be a superior option compared to going after the beta-amyloid protein. The risk is that the Tau protein has not shown to be successful yet in a phase 3 study treating this patient population. Therefore, it remains to be seen if Eli Lilly obtains success by targeting another protein responsible for accumulation in the brain cells of patients. I think that it will be a long road ahead for Eli Lilly and its partner AC Immune. More data will be necessary in the coming years, to determine if targeting the alternate Tau protein provides a more robust response for patients with Alzheimer's.
This article is published by Terry Chrisomalis, who runs the Biotech Analysis Central pharmaceutical service on Seeking Alpha Marketplace. If you like what you read here and would like to subscribe to, I'm currently offering a two-week free trial period for subscribers to take advantage of. My service offers deep dive analysis of many pharmaceutical companies. The Biotech Analysis Central SA marketplace is $49 per month, but for those who sign up for the yearly plan will be able to take advantage of a 33.50% discount price of $399 per year.
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