Drug candidates for treating Alzheimer's disease have a 99% failure rate in trials. But Lawrence Friedhoff, who led the team responsible for developing Aricept, is working on a new drug that will increase its efficacy.

In this clip from Industry Focus: Healthcare, Motley Fool analyst Kristine Harjes is joined by contributor Todd Campbell to explain how far along Intepirdine is in its trials, how likely it is to be approved, what a blockbuster drug this could be, and why investors need to still be very cautious about buying into Axovant (NYSE:AXON) today.

A full transcript follows the video.

This video was recorded on July 19, 2017.

Kristine Harjes: Let's move on to talk about a company that's working in a space that's larger by multiples than this LN space. This is a company that's working in Alzheimer's disease research. The company name is Axovant Sciences, and their ticker is AXON.

Todd Campbell: Recommending anything that we're talking about, any kind of clinical trials that have to do with Alzheimer's disease, it's not even a coin flip. If you look at the historical success rate of clinical trials in Alzheimer's disease, it's been horrible: 99% of drugs that have gone into the clinic for Alzheimer's disease have come up short. And that's very sad, obviously, because this affects over 5 million people here in the United States alone, and that's climbing every year. I think every 66 seconds, another person is being diagnosed with Alzheimer's disease. So, there's a massive unmet need for new drugs. It's also a very, very difficult indication to develop new drugs for. However, all that being said, Axovant is interesting, because their chief development officer is one of the only people who have had success in developing an Alzheimer's disease drug.

Harjes: Right. This is a guy named Lawrence Friedhoff who, while he was at a company called Eisai, was responsible for the development of Aricept.

Campbell: Aricept is one of the most commonly used Alzheimer's disease drugs. Actually, in terms of commercial sales, it's the biggest drug that's ever been developed for Alzheimer's disease. Friedhoff now is at Axovant Sciences working on a new drug, Intepirdine, that can be used alongside Aricept to hopefully delay disease progression in Alzheimer's disease patients. phase 3 results are coming up later this year -- actually, potentially this quarter.

Harjes: Yeah, I believe results are due in September.

Campbell: Yeah. That's exciting. Obviously, there's a huge catalyst here. Shares could go to the moon or they could crash right through the floor depending on how this trial pans out, because this is the one drug that could move the stock up or down. But it's very intriguing to me that you have the same guy behind Aricept working now at Axovant on this new drug. Both of these drugs have a slightly different mechanism of action. One boosts the presence of a neurotransmitter that's important to memory, the other reduces the ability for the body to break down that same neurotransmitter. So, conceivably, using them in combination with one another would make sense to improve Aricept's efficacy that you've seen so far, just using it as a monotherapy. In phase 2 trials, again, pretty solid results in improving outcomes for patients. However, again, this is Alzheimer's disease, and we've seen plenty of phase 2 trials come up short in phase 3. So, this is probably a pretty risky bet, one way or the other.

Harjes: Also, another point to remember here is, this drug that they're developing was purchased from GlaxoSmithKline after GSK abandoned the program. So, this was back in around 2011. GlaxoSmithKline decided that this drug had missed its primary endpoints of significant improvement of cognition, and they decided to scrap it. Axovant came along, this was pre-IPO, and bought the drug for $5 million, which sounds like a lot to you and me when we think about our own wallets, but that's actually really not a lot at all. It turned into $10 million last year when the FDA OK'd a phase 3 trial, so it was two payments of $5 million. Then Axovant IPOs in June 2015. It was at the time, the largest biotech IPO, and after day one it had a $3 billion valuation. So, for $10 million, they bought this drug that then landed them a $3 billion valuation. So, to me, this is like, that's an incredible difference. And when you look at the guy behind all this, he used to be a former hedge-fund manager. His name is Vivek Ramaswamy, and he basically had no drug development experience. He was behind not just this big biotech IPO, but the one that was also the biggest biotech IPO in 2016. So, this guy is a businessman. You get this drug, and now it's being developed further as opposed to being in GSK's dustbin, and it's being developed alongside Aricept. So, bringing on Lawrence Friedhoff, who was responsible for Aricept's development, that's awesome, that's a really good sign. I'll also add that back in April, a guy named David Hung took over as CEO. This guy was the former president and CEO of Medivation, which, if you've been following along with that story, was acquired for $14 billion last year from Pfizer mostly because of their prostate cancer drug, Xtandi. So, now you have people who really do have experience in this type of market leading this company.

Campbell: With what Hung did at Medivation with Xtandi and prostate cancer, I have a hard time believing that he didn't do a whole heck of a lot of due diligence, sitting down and considering whether or not to take the top seat here at Axovant. Now, who knows what that means. But, again, you have a proven team. Could they catch lightning in a bottle again? Maybe. We should, at least, find out again soon in this case, because like you said, that data is expected to come up in September. If it's good, and this drug enters the market, I think Axovant's market cap right now is $2.5 billion, that's probably not high enough given the commercial opportunity that could be ahead of it with this drug, if it's successful.

Harjes: But, as you mentioned, this is a high-risk play. So that $2.57 billion market cap could easily disappear if the drug flops.

Campbell: Yeah, buyer beware. Very small percentage of your portfolio, any money that you're willing to lose, you have to be willing to lose to invest in this company.

Harjes: Yeah. Personally, I'm a little bit hesitant with this one because there's so much over-enthusiasm about the Alzheimer's developers as a whole. I tend to think that the reward is not quite worth the risk with a lot of these, Axovant included.

Kristine Harjes has no position in any stocks mentioned. Todd Campbell owns shares of Pfizer. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.