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This Failed Drug Bet Is Business as Usual

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Eli Lilly (NYSE: LLY  ) just can't catch a break. Of course when you're trying to develop drugs for difficult-to-treat diseases like Alzheimer's and lung cancer, breaks can be hard to come by.

Two weeks ago it was solanezumab that flunked its phase 3 trials in Alzheimer's, and this week it was Alimta failing a trial in lung cancer.

The trial tested a combination of Alimta with Roche's Avastin compared with Avastin plus chemotherapy. Using Alimta rather than chemotherapy lengthened the progression-free survival, a measurement of when the tumor starts to grow again, but it failed to show an effect where it counts: overall survival. The Alimta patients actually did slightly worse, living a median of 12.6 months versus 13.4 months for patients getting chemotherapy.

The failure shouldn't come as much of a surprise. As with Alzhiemer's disease, a graveyard of lung cancer drugs is littered with drugs that failed to conquer the disease.

Does that mean Lilly shouldn't have run those trials? Of course not. Since the diseases are so hard to treat, they're also a huge unmet need. High risk typically comes with high reward in drug development.

That being said, investors need to watch companies to ensure they're not just throwing stuff at a wall to see what sticks. Running a phase 3 trial on a drug that might not work seems reasonable. Running a phase 3 trial on a drug when there's no telling whether it might work is just a waste of R&D dollars.

Example one: Aeterna Zentaris and Keryx Biopharmaceuticals' (Nasdaq: KERX  ) perifosine, which failed to show an effect in advanced colorectal cancer. Clearly, running a phase 2 clinical trial to confirm their hypothesis would have been a good idea.

Ditto for Alzheimer's treatment bapineuzumab, which is owned by Pfizer (NYSE: PFE  ) , Johnson & Johnson (NYSE: JNJ  ) , and Elan (NYSE: ELN  ) , although the decision to move ahead rather than run another phase 2 trial was made by Wyeth (which Pfizer acquired) and Elan.

Of course, as Lilly has shown, a promising phase 2 trial isn't a guarantee that the larger phase 3 trial will be a success, especially in areas where other drugs have failed. Being a large company, Lilly can afford to take some risk and have some failures, but it needs to get a hit one of these days to pay for all these trials.

Despite its recent trial failures, Lilly's 4.2% dividend yield can help investors ride the waves of drug development. If you're interested in more dividend ideas, check out the Fool's new free report "Secure Your Future With 9 Rock-Solid Dividend Stocks," where you'll find one drug developer and eight other promising companies sporting nice payouts. Get your free copy.

Fool contributor Brian Orelli holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Johnson & Johnson and creating a diagonal call position in Johnson & Johnson. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (1)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 11, 2012, at 2:12 PM, sfgoon wrote:

    Brian, you've made a very serious factual error in this article regarding the purpose and scope of clinical trials (as well as the regulatory oversight required via the FDA.) Had you done your appropriate diligence, you never would have arrived at the erroneous conclusion you did. Seems like you're trying to crank out as many articles as possible to gain search engine placement without doing any real depth of research.

  • Report this Comment On September 13, 2012, at 3:49 PM, Troy2008 wrote:

    Kerx DID a PII trial. Duh.

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