As a longtime critic of Eli Lilly's (LLY 2.09%) R&D and clinical trial management, I can't say I was surprised to see the news that yet another phase 3 drug candidate failed -- this time it was edivoxetine in depression. That stings all the more with recent late-stage failures for drugs targeted at breast cancer, Alzheimer's, and schizophrenia. It also serves to highlight that the depression market is a challenging one, making the recent launch of a new and different depression drug from H. Lundbeck (HLUYY +0.00%) all the more interesting.
Another swing and miss
Part of the reason I'm not overly fond of Lilly is that I believe management puts too much of its future sales and profits at risk by funding high-cost, low-probability phase 3 studies for compounds where the risk/probability-adjusted returns are not very good. The development of edivoxetine is just the latest case in point.
Lilly gave it a good try and was quite thorough (launching three late-stage studies), but only Lilly seemed to think this was a promising drug. The market for depression drugs is a multibillion-dollar market and a successful branded depression drug can be worth more than $1 billion in annual sales, but risk-adjusted forecasts hovered around the $300 million, and sell-side analysts have a demonstrated tendency to overestimate.
Lundbeck hoping Brintellix will be brilliant
While Lilly was hoping that edivoxetine could help cushion the blow of losing Cymbalta's $5 billion a year in branded sales to generic competition, another company has made it to market with a new depression drug. Lundbeck's Brintellix (vortioxetine) works through multiple pathways -- enhancing neurotransmitters, inhibiting reuptake, and working on multiple receptors. That makes it somewhat similar to Forest Labs' (NYSE: FRX) Viibryd, though Brintellix appears to work on a larger number of serotonin receptors (including 5-HT1B as a partial agonist and 5-HT1D,-3A, and -7 as an antagonist).
In this case, this is a distinction that makes a real difference. Not only has Brintellix been shown to improve the symptoms of depression, it does so with a better side effect profile. Brintellix has been shown to result in less insomnia and weight gain than Viibryd or Cymbalta, and studies have also shown meaningfully lower levels of sexual dysfunction, an oft-complained about side effect of many depression drugs.
Lundbeck has also shown results (from the FOCUS study) that indicate improved cognitive function in depression patients taking Brintellix. Lundbeck will need to see positive results from a second cognition study (due to report next year) to get a labeling claim, but this could be a powerful boost to the sales potential of this drug.
Launching a new branded depression drug isn't going to be easy. Viibryd hasn't exactly blown the doors off, as sales were up 19% in the last quarter and annualizing at less than $200 million a year. Part of the problem is generic competition -- the FDA just approved multiple generic forms of Lilly's Cymbalta, and other well-known anti-depression drugs like Prozac and Lexapro (a blockbuster drug that Lundbeck developed and licensed to Forest Labs) are also available as generics.
Even so, Lundbeck and marketing partner Takeda Pharmaceutical (NASDAQOTH: TKPYY) are going to push the points of differentiation between Brintellix and other depression drugs. The full U.S. launch is scheduled for next month, and the companies have been busy deploying sales reps and queuing up key opinion leaders.
The companies have also been ambitious with pricing -- going for a price on par with branded Cymbalta and betting that patients (and insurance companies) will pay for the better side effect and cognition profile. What's more, Lundbeck management has made it clear that it expects over $1 billion in sales of Brintellix by 2018, and the company is looking to pursue follow-up studies in indications like ADHD.
The bottom line
Lundbeck has already succeeded where Lilly failed, and while I do not expect Brintellix to be the next Cymbalta or Lexapro, I believe it will be a winner. That, along with the company's pipeline of other CNS drugs (including a late-stage candidate for Alzheimer's), is why I own shares of H. Lundbeck. Investors must do their own due diligence, and I would suggest that it may be more cost-effective to buy the Danish shares, as most major brokerages now allow international trading at relatively reasonable prices.
In any case, Eli Lilly still has much to prove with respect to its phase 3 pipeline, and Forest Labs still has work to do to make Viibryd into a winner. In the meantime, I look for Lundbeck to continue to do well toiling in relative obscurity.
