Clinical Trial of New Johnson & Johnson Alzheimer's Drug Fails
Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
New Jersey-based healthcare products and consumer packaged goods manufacturer Johnson & Johnson (NYSE: JNJ), announced late on Monday that one group of a Phase II clinical trial of its new drug for the treatment of Alzheimer's disease, bapineuzumab, failed to show that the drug slowed the progression of the disease. A similar statement was also concurrently issued by Pfizer, Inc. (NYSE: PFE), which acquired an interest in the drug, along with JNJ, when it purchased Wyeth in 2009. Bapineuzumab was developed by Irish pharmaceutical manufacturer Elan Corporation, PLC (NYSE: ELN) in conjunction with Wyeth. ELN still retains a significant ownership interest in the drug.
The clinical trial of bapineuzumab was divided into four groups, two of which were comprised entirely of people who have the ApoE4 gene and two groups of people who do not carry that gene. The presence of the ApoE4 gene indicates that the person who carries it is much more likely to develop Alzheimer's disease. Lack of the ApoE4 gene does not indicate that a person will not develop Alzheimer's, but merely that he or she is less likely to do so. The failed clinical trial group was comprised only of patients who have the ApoE4 gene.
Failure of the clinical trial came as no surprise to JNJ, PFE, or ELN. Medical researchers predicted earlier this year that they expected bapineuzumab to fail in groups of people with the gene, because those individuals are much more likely to develop Alzheimer's than any other group. In fact, some medical researchers predicted that it would almost be "miraculous" if the drug were found to be of any assistance to people with the gene. The results of one more clinical trial group with the ApoE4 gene are expected to be released later this summer, but no one is predicting that the results will differ from those announced on Monday. Rather, both medical and financial market analysts are watching for the release of results from the non-ApoE4 gene panels in September of this year. The results from those two panels are expected to be far more predictive of the future value of the drug.
JNJ, PFE, ELN, and numerous other pharmaceutical companies are racing to find a drug that will significantly relieve the onset, symptoms, and severity of Alzheimer's disease in order to take advantage of the expected enormous market size for drugs acting on Alzheimer's. The estimated size of the total, worldwide market for Alzheimer's-related drugs is $20 billion.
PFE already has a significant entry in the Alzheimer's drug market with Aricept, a drug that is used to help relieve the symptoms—but not cure—the disease. Through Aricept, PFE currently controls approximately 55% of the U.S. market for Alzheimer's-related drugs, representing annual gross sales of approximately $2 billion, through Aricept. The second most successful drug for Alzheimer's is Forest Laboratories (NYSE: FRX). Namenda, the only drug approved by the FDA for the treatment of severe Alzheimer's and which holds a market share of 23%. Aricept and Namenda work through chemical pathways which are not only different from each other, but also different from those used by bapineuzumab. JNJ, the major stakeholder in the drug, hopes that bapineuzumab will represent a significant improvement over Aricept and Namenda in the success of treatment regimens for Alzheimer's. Additionally, PFE is anxiously trying to find a replacement for Aricept, as the patent on the drug expired in 2010.
News of the failed clinical trial panel for bapineuzumab on Monday caused the stocks of all three companies related to the drug—JNJ, PFE, and ELN—to fall on Tuesday, but with only minimal effect on JNJ and PFE. JNJ stock fell 1.1% on the day's trading, from an opening of $68.11 to a close of $67.35, a loss of $0.65. Similarly, PFE closed down by less than 1% (0.95%) with a loss of $0.23 to a closing price of $23.38. However, ELN lost almost $2 on the day ($1.99), falling to a closing price of $11.52, representing a loss of 14.73%. Market analysts attributed the small losses in the stocks of JNJ and PFE to the fact that both of those companies have large product portfolios with sales that would largely dwarf those expected from bapineuzumab, and that medical researchers stated well in advance that they did not expect the failed clinical trial to be medically significant. However, analysts believed that ELN lost almost 1/7th of its stock's value during the trading day—despite the insignificance of the clinical trial—because bapineuzumab is of a very limited range of major products that that company makes.
I believe, however, that these one-day price movements are not very indicative of the future performance of JNJ stock. JNJ, in particular, is a massive company with dozens, if not hundreds of products in virtually all areas of medical and personal care, from prescription drugs to nonprescription drugs, to medical devices, to simple bandages, and to even cosmetic and baby care products. Whether bapineuzumab succeeds or fails in the clinical trials of people who do not have the gene for Alzheimer's disease, it will affect JNJ's bottom line to some extent, but it will not make or break the company.
However, holders of PFE and, especially, ELN may want to be more cautious in the medium to long-term. PFE lost its exclusive status to its top-performing anti-Alzheimer's drug Aricept via the generic route in 2010, so a failure by bapineuzumab to perform well in the non-gene clinical trials would represent a big blow to the company's presence in the Alzheimer's drug market. Holders of PFE should, therefore, be careful to keep track of future news on the viability of bapineuzumab.
This caution is at least doubly true for those invested in ELN. The significant movement in the stock's price following the announcement of the clinical trial failure clearly does not represent any medical-based concern about the drug's future performance at this time, but it most certainly does show that investors in the stock are nervous about the company's future since it has so much at stake in the success or failure of bapineuzumab. Holders of ELN stock should, therefore, be quick to take note of the drug's future clinical trial performance when the results of the two non-gene trials of bapineuzumab are released in just a few months and take action accordingly.
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