Treating disease is a big-money business for pharmaceutical and biotech companies. What was a $1.1 trillion market in 2016 is expected to lead to $1.5 trillion in global drug sales by 2021. With a growing global population and no shortage of diseases left to be treated, investors would think that putting their money to work in drug developers would be a smart idea. 

But therein lies the rub: Not all clinical trials prove successful. In fact, a vast majority of hopeful drugs will fall flat on their face at some point during the discovery, laboratory, preclinical, or clinical-testing process. According to Medscape, just one out of every 5,000 to 10,000 drug hopefuls tested in preclinical trials will get the green light from the Food and Drug Administration and find their way to pharmacy shelves. 

A biotech lab researcher using a dropper.

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Some diseases that have been notoriously tough to treat are suddenly finding slivers of success thanks to the advancement of diagnostic technology. As an example, the ability to find and target cancer biomarkers has allowed drug companies to develop therapies that give patients a better chance of an objective, long-lasting response that results in stable disease and/or disease regression. A lot of money is rightfully pouring into cancer research given recent therapeutic improvements in the space and with the understanding that it's the second-leading cause of death in this country.

Alzheimer's disease: Stuck in neutral

However, success has not been on the side of the sixth-leading killer in the U.S.: Alzheimer's disease. According to the Alzheimer's Association, an estimated 5.7 million are living with the disease. And not only are one in three seniors today dying with Alzheimer's or another source of dementia, but it's expected to cost this country $277 billion to treat Alzheimer's patients this year alone.  

Now, understand that it's not as if researchers and donors aren't contributing funds to help treat Alzheimer's disease. They are. The real issues are twofold.

First, it's a really tough disease to get a grapple on at the scientific level. Researchers understand that beta-amyloid plaque buildup on the brain is one of the telltale signs of Alzheimer's and is responsible for cognitive degradation over time. They're also aware that tangled tau proteins play a role in cognitive decline in the latter stages of the disease. What they don't have a clear grasp of what biomarkers are responsible for leading up to this beta-amyloid plaque accumulation. In other words, with the exception of visibly noticing cognitive decline in the patient, it's very difficult for researchers to predict the risk factors and biomarkers responsible for Alzheimer's early enough to make a difference. 

The second issue is that we're talking about treatments that have to cross the blood-brain barrier, which has historically proven to be no easy task. Medicines targeting the brain are often far less predictable than medicines that target a disease in the blood or practically any other organ in the body.

A doctor holding the hand of an elderly patient in an exam room.

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Sad but true: Betting against Alzheimer's drugmakers is a very profitable strategy

The sad reality of Alzheimer's research is that investors would have done exceptionally well if they'd simply placed their bets against drug companies focused on the disease. Keeping in mind that there are a small handful of approved Alzheimer's therapies, most, regardless of whether they demonstrated promise in phase 1 or 2, have fallen flat on their face in pivotal-stage trials.

In September of last year, Axovant Sciences (NASDAQ:AXGT) reported data on its then-lead drug intepirdine, a 5-HT6 inhibitor. The phase 3 Mindset trial, which enrolled more than 1,300 patients, demonstrated no statistically significant improvement in the primary endpoint, which was a drug-placebo difference on the Alzheimer's Disease Assessment Scale-Cognitive Subscale. Shares of Axovant were eviscerated and plunged 70% following the setback. Axovant would tank once again in January when it announced that it was abandoning its once-promising Alzheimer's drug. Today, Axovant's stock is nearly 90% lower than where it was just days before disclosing its Mindset results.

For what it's worth, other drugs targeting the 5-HT6 inhibitor also flopped, including Pfizer's PF-05212377 and H. Lundbeck's idalopirdine. 

Speaking of Pfizer, the big boys have struggled mightily to conquer Alzheimer's. Back in 2012 Pfizer, Johnson & Johnson, and partner Elan (which was gobbled up by Perrigo in 2013) announced that bapineuzumab failed miserably in multiple Alzheimer's trials. Meanwhile, Eli Lilly's (NYSE:LLY) solanezumab failed to meet its primary endpoint in 2012, then, in a broader long-term study on earlier-stage Alzheimer's patients, missed its endpoint again. Eli Lilly scrapped solanezumab in 2016. 

Another victim is microcap Prana Biotechnology, which was annihilated in 2014 after reporting disappointing phase 2 results for experimental drug PBT2. In the study, Prana noted that there was no statistically significant reduction in beta-amyloid plaque levels in the brains of patients with mild forms of the disease, relative to the placebo. Shares of the company nosedived more than 70% when this data was announced, and they're lower by more than 90% since the end of March 2014. 

Generally, betting against small- and mid-cap companies with a specific focus on Alzheimer's close to when they're to report clinical data has (sadly) been an almost surefire win for pessimists.

A doctor with a clipboard in deep thought.

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Could this time be different?

Of course, my "bet against all Alzheimer's drugs" thesis took a bit of a hit last week when biotech blue-chip Biogen (NASDAQ:BIIB), which is working alongside partner Eisai (OTC:ESALY), reported positive mid-stage data on blockbuster hopeful BAN2401.

Patients receiving the highest dose (10 mg/kg weekly) demonstrated a reduction in beta-amyloid plaque in the brain, and a statistically significant slowing in cognitive decline at the 18-month mark. Given that this is only a phase 2 study, Biogen and Eisai will have to chat with the FDA to hash out a broader phase 3 clinical trial for BAN2401.

So, is my hypothesis on betting against Alzheimer's drug busted? Not exactly. You see, even though BAN2401 met its primary endpoint at the 18-month mark while using conventional statistic methods, the experimental drug failed to hit its primary endpoint as the 12-month mark while using Bayesian analysis. Plus, history has shown that while drugmakers have regularly targeted beta-amyloid-reducing drugs, they've pretty much all fallen flat once they've reached phase 3 trials. 

While I'd personally love to see some of these studies succeed in treating Alzheimer's patients given the severity of the disease, I'm only going to believe in BAN2401 when I see definitively positive phase 3 trials results. My personal feeling is that it's not time to go breaking out the champagne just yet.