Diabetes giant Eli Lilly (NYSE:LLY) added another phase 3 failure to its growing pile, this time in neuropsychiatry.
The company announced it was ditching development of edivoxetine as a new treatment for depression after three separate phase 3 studies failed to show significant improvements over a selective serotonin reuptake inhibitor (SSRI) alone, the current first-line therapy for depression.
While the drug never was forecasted to be blockbuster, it does hurt confidence in the company hold in neuropsychiatry as it battles generics and looming patent expiry for schizophrenia and bipolar therapy Zyprexa and anti-depressant Cymbalta.
CEO John Lechleiter is banking his strategy on major investment in R&D and reiterated his confidence in Lilly's pipeline. Nonehtless, edivoxetine adds to the growing pile of failures for the company. Other neuropsychiatry failures includes solanexumab, a phase 3 agent for Alzheimer's disease, and pomaglumetad methionil for schizophrenia. Lilly also acquired Alzheimer's imaging agent Amyvid, with no Medicare reimbursement or obvious clinical utility.
Ramucirumab was an embarrassing failure as a breast cancer therapeutic, although Lilly is still trying to salvage the agent for use in stomach cancer. Solanexumab was another phase 3 failure in neuropsychiatry as a treatment for Alzheimer's.
Shareholders may be tired of waiting as Lilly continues on its drought of new approvals. However, the company still has spots of brightness in its old stomping grounds of diabetes. GLP-1 agent dulaglutide is a major prospect for Lilly with projected sales of $1.7 billion by 2020. Studies have shown the agent to beat both Bristol-Myers Squibb's (NYSE:BMY) Byetta and Merck's (NYSE:MRK) Januvia, but there already exists significant competition in the GLP-1 field, including diabetes leader Novo Nordisk's (NYSE:NVO) Victoza. To make it worthwhile, Eli Lilly will have to not only achieve approval but superiority versus the many competitors already fighting for approval.
If Lilly can't even deliver in its old market of diabetes, however, it is likely to join its big pharma rivals in restructuring to cut back on R&D. Recent studies by Deloitte show that returns on R&D have been halved since 2010 and other pharma giants like Roche, AstraZeneca, Pfizer and more recently, Merck, have already adjusted accordingly, slashing R&D budgets and looking toward buyouts and acquisitions.
Lilly's R&D expenses account for about 23% of revenue, well above the industry average of 15%. Analysts estimate Lilly will cut R&D from $5.4 billion to $4.7 billion by 2018. Compared to Merck's over $8 billion R&D budget and Pfizer's $6.5 billion one, Lilly's reductions are certainly operationally possible. Analysts estimated that for Merck, every $1 billion in reduction would add $0.25 per share.
And like Eli Lilly, Merck's restructuring was spurred by looming patent competition and several pipeline failures such as sleeping aid suvorexant and cholesterol agent Tredaptive. And like Eli Lilly's diabetes agent dulaglutide, Merck retains hope in its developing immunotherapy lambrolizumab.
Based on trends from the rest of big pharma, Eli Lilly may be the latest to join on the bandwagon of the Great Restructuring. Eli Lilly's multiple failures are tanking confidence and its remaining pipeline darlings are not as strong as the company may be spinning. Ramucirumab may have efficacy against stomach cancer, but data makes it seem like a long-shot especially as compared to its already rejected use in breast cancer. Dulaglutide has not even been approved yet but already faces stiff competition in the already crowded diabetes field, which has also brought tighter FDA safety regulations.
It looks like without some major cost-cutting or a blockbuster drug -- and soon -- Eli Lilly will have to either change its strategy or suffer the wrath of its shareholders.
Fool contributor Amy Ho has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.