Eli Lilly in Great Position with New Drug Amyvid
Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Eli Lilly (NYSE: LLY) has collaborated with Cardinal Health (CAH) to make a remarkable breakthrough in assessing cognitive decline. The FDA recently approved Eli Lilly subsidiary Avid Radiopharmaceuticals' new radioactive drug, Amyvid. This drug is a "new type of nuclear-medicine test [that] will allow physicians to 'see' the beta-amyloid plaques in the brains of patients who have declining cognitive function." This is a useful breakthrough in analyzing the cognitive decline in patients that may have Alzheimer's disease.
At the beginning of the procedure, the drug is injected into the patient. Following this, the patient undergoes a positron emission tomography (PET) scan. During the scan, the Amyvid in the patient's system allows the doctors to pick up on images of the amyloid neuritic plaques in the patient's brain. These plaques are indications of less-than-optimal brain functioning and tend to be related to Alzheimer's disease. This disease can usually only be determined for certain in the autopsy after death. This is a significant breakthrough in the study of the illness, therefore, as it provides doctors with a useful tool for determining the cause of cognitive decline.
It is important to keep in mind that the results when using Amyvid are not entirely conclusive. A negative result simply reduces the likelihood that the cognitive impairment is due to Alzheimer's. In addition, a positive result could be an indication of Alzheimer's, but it could also be an indication of other illnesses that cause cognitive decline, or even of normal brain functioning of an elderly patient. That being said, it is still a major achievement in the study of cognitive decline caused by Alzheimer's disease.
Eli Lilly is even hesitant to market the drug as a definitive diagnostic measure for Alzheimer's disease, stressing that it has to be used in conjunction with the other diagnostic tools and measures already available. The company went on to say that the effectiveness and safety of the drug have not yet been fully determined for "predicting development of dementia or other neurologic conditions or monitoring responses to therapies."
The approval of Amyvid follows a great deal of controversy regarding the true effectiveness of the drug in predicting the causes of cognitive decline. Eli Lilly stresses that the results should only be read by those who have been specially trained to read them. Even in situations where trained readers look at the results, reports show that between 5% and 14% of the readings turn out to be wrong. This places the diagnostic value of the drug under close scrutiny.
I do believe this an important step for the company. Since distribution will be limited at first, however, I also doubt that the company will significantly benefit from this breakthrough, at least in terms of revenue. The results from Amyvid are not conclusive, furthermore, and I believe this will also limit the impact this drug will have on the company. It does give the stock a good name, however, as Eli Lilly will now be seen as an innovative leader in pharmaceutical technology. A good reputation can significantly benefit a stock, even if its effect on the company may be limited.
Competitor Abbott (NYSE: ABT) recently pleaded guilty to charges that it marketed its anti-seizure drug Depakote for uses that were not approved by the FDA. This is a serious situation for the company, especially as Abbott purposefully and systematically set out to market the drug in this way. The impact this will have on the stock is obvious. It certainly goes a long way in reducing investor confidence in the company. In addition, the company now has to pay $1.5 billion in damages, so the financial backlash is substantial. When a company's reputation and finances are simultaneously looking grim, it would be difficult for the stock not to drop.
Merck (NYSE: MRK) recently announced that it would not follow the current trend of selling off non-core assets, which has allowed companies to focus on more important domains. Pfizer (PFE) and Abbott Labs are among the companies that have chosen this path, but Merck believes in thinking for itself. Its animal health business complements its other divisions and is also highly profitable. Although it may not be a core asset, therefore, to get rid of it now would not be wise. As a result of Merck's confidence and consistency, I believe this will have a slightly positive effect on the stock, even if it is rather minor.
Competitor Johnson & Johnson (NYSE: JNJ) may have just bungled its attempt to get involved in the fight against cancer. We know that the companies that succeed in fighting cancer will be our future leaders in the pharmaceutical industry. The company's new drug, Zytiga, reportedly shows good results in terms of blocking the spread of prostate cancer. The clinical trials were stopped early, however, for ethical reasons. This will make it difficult for the company to prove its other claim that Zytiga also extends the lifespan of those who choose to take it. The negative and positive aspects of this news story will probably cancel out, leading to a neutral effect on Johnson & Johnson stock.
GlaxoSmithKline (NYSE: GSK) is continuing its attempts to acquire Human Genome Sciences (HGSI), and I believe that it will not be long now before the company is successful. This is despite the fact that Human Genome Sciences has adopted a "poison pill" strategy to turn away GlaxoSmithKline. It has recommended that its shareholders reject the offer and do not tender their shares. GlaxoSmithKline is unperturbed by these developments, however, and I believe that it will soon acquire the smaller company for only a slightly-higher price than the initial bid. The tension between the companies will likely have a small negative effect on both stocks. Since this will be minor, I expect better things after the situation gets resolved.
Compared to its competitors, Eli Lilly seems to be in a decent position. Its new radioactive drug will have a positive impact on the stock, but at the moment, this will be fairly small. At the very least, it is in a better position than Abbott. Even when considering its other competitors, it seems to be one of the better stocks at the moment. Based on the above developments, I anticipate that Eli Lilly stock will be going up and should be a good investment.
jordobivona has no positions in the stocks mentioned above. The Motley Fool owns shares of Abbott Laboratories, GlaxoSmithKline, and Johnson & Johnson. Motley Fool newsletter services recommend GlaxoSmithKline and Johnson & Johnson. 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.If you have questions about this post or the Fool’s blog network, click here for information.