Can Roche Find Rare Success In Alzheimer's?

Tomorrow will be an interesting day for Roche (NASDAQOTH: RHHBY  ) , its shareholders, and those interested in the treatment of Alzheimer's disease (or AD). Roche is scheduled to report phase 2 data on its antibody therapy crenezumab in patients with mild and moderate Alzheimer's. It is wise to expect little from any experimental AD, as this disease has frustrated almost every company that has attempted to develop a therapy, but the potential of a successful drug is so high that any credible attempt is at least worth watching.

What it is
Crenezumab is an anti-beta amyloid antibody, licensed by Roche from AC Immune SA, that targets these protein fragments that are believed to play a central role in AD. Unfortunately, the pathophysiology of AD is still largely unknown and it has yet to be established exactly what role beta amyloid plays or how best to address it.

Other companies have tried and failed via this route. Johnson & Johnson and Pfizer met with the high-profile failure of bapineuzumab. Lilly  (NYSE: LLY  ) has had, at best, mixed success with solanezumab but the company has engaged in some hefty data-mining and is hoping that it can show approvable efficacy in mild AD or pre-AD patients. This is also not Roche's only attempt via this mechanism – the company is developing gantenerumab in partnership with MorphoSys and that antibody is in phase 3 testing.

Crenezumab is a different approach. The backbone of the therapy is IgG4, whereas the other three antibodies are/were based on an IgG1 backbone. Why does that matter? It seems that IgG4 stimulates microglia cells just enough to "motivate" them to clear beta amyloids without inducing a stronger immunological/inflammatory response (which can cause swelling and/or neurotoxicities). It's also noteworthy that crenezumab targets all three forms of beta amyloid (monomeric, oligomeric, fibrillar) – Lilly's drug targets just monomeric, while bapi targeted all three.

Expectations are best kept low
Given past results, I would be surprised if there wasn't a positive trend in the data concerning cognitive function, but I think Roche's results will be like most results seen in early AD studies – signs of efficacy, but a lot of "noise" and few definitive conclusions.

This phase 2 study has a few fundamental problems – it is relatively small (450 patients), it included both mild and moderate AD patients, and there was no screening for beta amyloid biomarkers as an inclusion criteria. Likely the best that can be hoped for, then, would be signs of activity in certain patient sub-groups and maybe strong enough signs to warrant further study in those particular groups. Were the study to show a statistically significant improvement in cognition (ADAS-cog) and/or function (CDR-SOB), that would be a very positive outcome.

At present, the average sell-side target for crenezumab revenue in 2018 is about $200 million. Keep in mind, that is a risk-adjusted figure that includes a high probability that the drug will never be approved at all. Even an AD drug with a limited label would likely generate more than $2 billion in revenue, which is likely why Lilly is trying so hard to find some salvageable indication for sola, so that gives you some idea of what sort of odds most analysts (and investors) have for drugs targeting AD.

What next?
What happens next depends on what Roche has to say tomorrow. An unexpectedly positive result would certainly move the shares and if the drug appeared effective in both mild and moderate AD patients (highly unlikely), Roche might want to run a multi-arm phase 3 exploring those groups separately. If the data show trends toward efficacy in identifiable groups, that too would likely shape further clinical development. If there's no discernible efficacy, Roche would likely terminate development – Roche is not a company to linger over poor candidates and try to snatch a Pyrrhic victory from clinical defeat. The worst outcome might in fact be a messy outcome that suggests some efficacy gives no clear guidance on patient selection – an outcome that would make it quite challenging to design a good Phase III study.

The bottom line
Investors appear down on Roche's ability to generate good long-term results from its pipeline. While it is true that there has been a lull in blockbusters following Herceptin, Avastin, and Rituxan, newer drugs like Zelboraf, Perjeta, and Gazyva aren't exactly worthless and Roche has developed a strong, broad, and comprehensive immuno-oncology platform. Success outside of oncology has proved elusive, though, and a good result in AD would likely push many Roche skeptics to rethink their position.

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