Big pharma: Eli Lilly stock erases 6 years of dividends after failed drug trial

What investors had hoped would build into yet another 2.68 percent dividend yield for pharmaceutical behemoth Eli Lilly has turned into a massive financial letdown after trials of solanezumab, a supposedly promising experimental drug for Alzheimer’s disease and other forms of dementia, showed less than favorable efficacy in the latest clinical trials.

Reports indicate that the so-called “safe haven” stock plunged nearly 15 percent, erasing more than six years of dividends for Eli Lilly, after solanezumab failed to live up to earlier trials that apparently showed it helps slow the progression of mild forms of dementia by roughly one-third in early-stage patients. The drug apparently didn’t perform as well this time around, prompting Eli Lilly to halt its research and development.

When asked about what happened, Eli Lilly chief executive officer John Lechleiter told FT.com that the results “were not what we had hoped for,” and that the company has no plans to push for regulatory approval. He added that while the results “directionally favored the drug, the magnitudes of differences were small,” which is really just fancy way of saying that solanezumab is barely effective, if at all.

Solanezumab isn’t the only Alzheimer’s drug in Eli Lilly’s development pipeline, and the company says it won’t necessarily abandon all plans to move forward in its development. But for now, it faces major fourth-quarter losses to the tune of $150 million, or about nine cents per share of its stocks.

“We will evaluate the impact of these results on the development plans for solanezumab and our other Alzheimer’s pipeline assets,” Lechleiter explained in his statements to the media.

99 percent of pharmaceuticals undergoing clinical trials never make it to market

Alzheimer’s drugs are currently a hot commodity in the world of pharmaceutical R&D, with many companies working on their own hopeful “blockbusters” for future release. But when one fails, everyone suffers, at least in terms of shareholder confidence. Competitor Biogen, for instance, which is working on its own trials for a new Alzheimer’s drug saw its stock prices plunge more than 7 percent in pre-market trading following the Eli Lilly announcement.

It’s a risk that the drug industry faces every time it undertakes a new area of drug development, and yet Eli Lilly says it isn’t phased by the loss. What one major media sourced described as the company’s “oversold” stock prospects aren’t going to suffer, said David A. Ricks, Eli Lilly’s incoming CEO and president of Lilly Bio-Medicines, in a press release.

“Lilly has strong growth prospects without solanezumab,” Ricks says. “Driven by new product launches, we continue to expect to grow average annual revenue by at least 5 percent between 2015 and 2020. Over that time frame, we also expect to increase our margins and provide annual dividend increases to our shareholders.”

Truth be told, as many as 99 percent of all drugs in clinical trials never actually make it to market, so the loss of solanezumab isn’t necessarily surprising. There are currently only four drugs approved by the U.S. Food and Drug Administration (FDA) to treat Alzheimer’s, and Eli Lilly wasn’t necessarily banking on solanezumab being added to the mix.

According to Business Insider, the target area for solanezumab was supposed to be the beta amyloid deposits in the brain that many experts believe are responsible for the progression of Alzheimer’s. The medical community refers to this as the “amyloid hypothesis,” or the accumulation of amyloid beta-peptide in the brain resulting in Alzheimer’s disease pathogenesis.

Sources:

ZeroHedge.com

FT.com

Lilly.com

BusinessInsider.com

NIH.gov