Surge in Lilly shares highlights perils, potential of Alzheimer's drugs

Yesterday Tim Anderson, a top analyst at Bernstein, helped underscore why a few Big Pharma companies and legions of investors are so enamored with the potential mega-market for new Alzheimer's drugs. And he inadvertently may have helped shed some light on why even more major developers are either scaling back on neuroscience or giving up on the field entirely.

By Anderson's estimate, Eli Lilly's ($LLY) solanezumab -- the pharma company's second big shot on the blockbuster Alzheimer's goal -- could earn a whopping $9 billion if late-stage studies demonstrate the beta amyloid-busting treatment can delay the onset of the memory-wasting ailment. Eli Lilly shares would skyrocket on positive data, perhaps double, he noted. But the chances of success are meager--only 10% to 20%.

"Eli Lilly and several of its competitors are willing to spend hundreds of millions of dollars on what is essentially a massive lottery ticket," Anderson said. "If their drugs are successful in delaying the progression of Alzheimer's disease, they could end up making Lipitor look like a mid-sized product."

As Bloomberg reported, Anderson's note helped trigger a short frenzy, pushing Lilly's big cap stock up an impressive four percent in afternoon trading.

Medivation ($MDVN) was in this position before when it whetted investors' appetite for the first round of late-stage data on dimebon. Shares rose as analysts pondered the huge income that could be earned by a safe drug that would be demanded by a huge market if it demonstrated even marginal efficacy. When dimebon failed to look better than a sugar pill in the first of three Phase III studies, shares cratered and Medivation was forced to turn to its promising prostate cancer drug as its next big drug hopeful.  

Lilly is far from alone in concentrating on beta amyloid as the prime suspect in the Alzheimer's case. That's the same approach that J&J ($JNJ) and Pfizer ($PFE) are relying on with their big bet on bapineuzumab, the other possible mega-drug in the late-stage pipeline.

The problem with Alzheimer's is that no one is truly certain about how the disease develops or how it can be slowed or stopped. Investigators at both companies are betting on biomarkers and investing huge sums in trials based on educated guesses.

The first biopharma company that sees the right data will win big. Fresh setbacks will only further hobble drug development for brain disorders, triggering more moves like Novartis's ($NVS) decision to shutter a neuroscience drug division in Basel. Big Pharma loves mega markets. But many in the industry have come to hate huge risks even more.

- here's the story from Bloomberg    

Special Report: Solanezumab - 15 top blockbuster contenders