Source: Flickr user David Goehring.
Eli Lilly (LLY +0.44%) is having another one of those no good, very bad weeks in which its management team probably wished it hadn't rolled out of bed, and shareholders probably wish they hadn't checked their investment portfolio.
Pipeline pain
On Monday, Eli Lilly stock plunged as much as 9% intraday after the company announced that its experimental CETP-inhibitor evacetrapib, which was designed to reduce the risk of heart attacks and strokes by promoting the production of high-density lipoproteins (the good type of cholesterol), would be shelved. The independent data monitoring committee overseeing the phase 3 study, which enrolled in excess of 12,000 patients worldwide, noted during a planned interim analysis that the likelihood of the drug meeting its primary endpoint of delaying serious cardiac events was low. The news proved shocking and not shocking at all at the same time.
The not shocking part relates to a pair of competing CETP inhibitors completely flopping in late-stage studies. In 2006, Pfizer (PFE 0.11%) announced results from its ILLUMINATE study involving experimental CETP inhibitor torcetrapib. The findings showed that while it did lead to an increase in HDL-C production, it also led to an increased risk of death among trial participants. The drug was immediately scrapped, and Pfizer learned an $800 million lesson that even big drugmakers are susceptible to mistakes.
Efficacy concerns also foiled Roche's CETP inhibitor dalcetrapib, which was discontinued in a phase 3 study in 2012 after the independent data monitoring committee saw little chance of the drug hitting its primary endpoint.
What makes Eli Lilly's retracement a bit shocking is that despite the failure of CETP inhibitors in previous phase 3 studies from its peers, Eli Lilly announced just over two months ago in a press release that it was continuing its phase 3 ACCELERATE study for evacetrapib on the recommendation of the data monitoring committee. This got the hopes of shareholders and Wall Street up, and had some analysts expecting blockbuster annual sales of up to $2 billion. Now its experimental drug will collect dust, resulting in a $90 million charge in the fourth quarter.
Source: Centers for Disease Control and Prevention.
Eli Lilly: building a recent history of failure
The results from ACCELERATE's interim analysis were definitely disappointing, but for Eli Lilly shareholders it's become almost a numbing norm. Failure is part of the drug development process, but high-profile failure is something we only see so often. Eli Lilly has been the poster child for failure in recent years, especially when it comes to treating Alzheimer's disease.
In 2010, Eli Lilly shelved the development of semagacestat, a gamma secretase inhibitor, after two phase 3 studies showed it not only failed to slow disease progression, but was also associated with the worsening of cognition and the ability to perform daily living activities among patients taking the drug.
In 2012, much of the same occurred, with Eli Lilly announcing that its phase 3 trial involving Alzheimer's drug solanezumab missed its primary endpoint. The drug did show promise after a closer analysis in early stage Alzheimer's patients -- enough that ongoing research into this early stage disease cohort should yield top-line data next year. However, the bottom-line as of now is that solanezumab missed the mark, and its blockbuster potential is, as of now, a moot point.
Just in case investors still had their hopes up, in 2013 Eli Lilly discontinued a phase 2 experimental Alzheimer's drug, LY2886721, a BACE inhibitor, after abnormal liver readings were observed in patients taking the drug.
Source: Eli Lilly.
Of course, it's not just Alzheimer's where Eli Lilly has been coming up short. Enzastaurin, a therapy designed to treat lymphoma patients with a high risk of relapsing following treatment with chemotherapy, missed its primary endpoint in phase 3 studies in May 2013. Just four months later Lilly reported that ramucirumab (known as Cyramza today) didn't deliver a statistically significant improvement in progression-free survival for breast cancer patients, while also providing no notable survival benefit in a late-stage study. In December 2013 it was the same story, with edivoxetine missing its primary endpoint of superior efficacy after eight weeks of treatment as an add-on therapy for major depressive disorder.
Shareholders and Wall Street hoped a new year would bring different luck for Eli Lilly, but 2014 held much of the same disappointment. In June 2014 Lilly's Cyramza missed its primary endpoint of a statistically significant improvement in overall patient survival as a treatment for liver cancer in (what else?) a phase 3 study. Months later, lupus drug hopeful tabalumab was scrapped after the first of two studies failed to hit the primary endpoint, and the combination of the two trials didn't offer up enough of a positive difference over existing therapies. Shelving this study resulted in a $75 million charge.
If that wasn't enough, Eli Lilly has also been walloped by patent expirations. Zyprexa, Gemzar, Evista, Cymbalta, Namenda, and Humalog are all now exposed to generic competition, and the pain is likely not over for Eli Lilly, with more patent expirations to come.
Eli Lilly's one ray of sunshine
As the saying goes, even a stopped watch is right twice a day, and Jardiance might be the one saving grace for Eli Lilly. Jardiance does not by any means make up for the cornucopia of failure listed above, but it does offer a source of rapid growth in the coming years.
Source: Boehringer Ingelheim.
Jardiance was developed in collaboration with privately held Boehringer Ingelheim. It's a new class of type 2 diabetes drug known as an SGLT-2 inhibitor that works in the kidneys as opposed to the pancreas or liver by blocking glucose absorption. Excess glucose is then excreted from the body through a patient's urine. As a whole, SGLT-2 inhibitors also offer the pleasant side effect of weight loss, which is typically good news for type 2 diabetics, who struggle with their weight more often than not.
The real advantage for Jardiance came from the recently reported EMPA-REG OUTCOME trial demonstrating a statistically significant risk reduction in cardiovascular events (such as a heart attack or stroke) in high-risk patients. Other SGLT-2 inhibitors have similar studies under way, but they're two to four years away from releasing those results. Additionally, Merck's DPP-4 juggernaut Januvia didn't deliver a statistically significant CV-event benefit in its long-term cardiovascular outcomes study. In other words, Jardiance has an opportunity to build significant market share in treating type 2 diabetes.
When will it be enough?
Despite the Jardiance news, Eli Lilly's late-stage drug development has been nothing short of ugly this decade. It almost makes you wonder if and when investors will wave their white flags and proclaim "enough is enough!"
Making matters worse, Eli Lilly isn't a "cheap" stock in comparison to other Big Pharma companies. It trades at a whopping 41 times its trailing 12-month earnings, 24 times next year's EPS, and 17 times its EPS estimate for 2018 (and that's looking three years down the road!). Its sales growth and EPS estimates likely don't reflect the failure of evacetrapib, and could be damaged further if solanezumab misses the mark in early stage Alzheimer's next year.
In plain terms, Eli Lilly is an expensive stock with a poor track record in phase 3 studies that has a lumpy pipeline and is still hurting from patent expirations. It's possible the ship could be righted in short order and help maintain the 60% gains Lilly's stock has galloped to since the end of 2013, but my opinion is that Eli Lilly remains a company that investors are going to want to avoid until further notice.
