Lilly’s Alzheimer’s gamble takes aim at $10 billion in patent losses

With two Alzheimer’s drugs in the final stage of human testing and two more being developed behind them, Eli Lilly
and Co. is committed to one of the riskiest bets in medicine to fill a potential $10 billion revenue gap.

Therapies now in use only address symptoms of the disease; they don’t cure or even slow it. And the search for new
treatments has been fraught with failure, the latest involving Pfizer Inc.’s Dimebon, which wasn’t shown to benefit
patients in an advanced study reported in March.

Lilly researchers say their early use of biomarkers, signals in the blood that show the medicines hit their targets, gives
them confidence the late-stage therapies will work. A drug that stops or reduces memory loss may be worth more than $5 billion
a year, said Tony Butler, an analyst with Barclays Capital. At the same time, Lilly faces generic competition by 2016 to products
with about $10 billion in annual sales, or almost half its revenue last year.

“There’s a lot of pressure to show success,” said Butler, who is based in New York, in a telephone interview.
“It’s a very risky area.”

Both of Lilly’s late-stage treatments are designed to reduce plaque in the brain called beta amyloid, thought by researchers
to be a main contributor to Alzheimer’s. The pill semagacestat inhibits an enzyme called gamma secretase that’s
tied to amyloid production. The intravenous therapy solanezumab is an antibody that binds to soluble beta amyloid, and helps
clear the material through the bloodstream.

The second of two 21-month trials for semagacestat finished enrollment in May, while two 18-month studies of solanezumab
are close to 70-percent enrolled, said Eric Siemers, medical director of Lilly’s Alzheimer’s research team, in
an interview at the company’s Indianapolis headquarters. The clinical trials are designed for at least 1,000 patients
and are being conducted at more than 220 sites in about 30 countries.

In each drug’s case, the company will report results after the second study concludes. Lilly is reporting earlier-stage
data from its Alzheimer’s program this week at the International Conference on Alzheimer’s Disease that started
July 10 in Honolulu. That includes additional biomarker information on solanezumab.

‘We really know our drugs are having an effect in the brain,” Siemers said. “Now, is it enough of an effect?
We don’t know.”

A leader in neuroscience since introducing Prozac as an antidepressant almost a quarter-century ago, Lilly still derives
the bulk of its sales from that field. The drugmaker’s two top- sellers in 2009 were the schizophrenia drug Zyprexa,
with $4.9 billion in revenue, and the depression treatment Cymbalta, at $3.1 billion. Those medicines, though, lose patent
protection in 2011 and 2013, respectively, while Lilly’s $1.7 billion cancer medication Alimta faces generic competition
in 2016.

In the past year, Lilly’s shares rose 5.4 percent, about half the increase for the Standard & Poor’s 500
Pharmaceuticals Index. The drugmaker's stock fell 4 cents, or less than 1 percent, to $35.13 per share in New York Stock
Exchange composite trading Monday.

Investors and analysts are closely watching the progress of Lilly’s two late-stage Alzheimer’s drugs, said Butler,
who recommends holding Lilly’s shares and doesn’t own any. He named those along with a late-stage diabetes treatment
called Bydureon as the most prominent of the company’s eight molecules nearing U.S. Food and Drug Administration review.
Butler estimates that drug could bring Lilly as much as $1.5 billion in annual sales.

Expectations for the Alzheimer’s treatments, though, are low, said Michael P. Krensavage, manager of Krensavage Partners
LP, a hedge fund that owns Lilly shares.

“Investors don’t really seem to want to give Lilly credit for its Alzheimer’s drugs,” Krensavage
said. “It’s been such a tough disease that investors have grown quite skeptical.”

The company also has one Alzheimer’s drug in mid-stage trials and has just introduced another into human testing. Lilly
scientists including Siemers declined to comment on the way those medicines work, citing competitive reasons.

The company also declined to say how much it’s spending on its Alzheimer’s program, although Jan Lundberg, Lilly’s
president of research and development, said, “in the neuroscience area, it’s definitely the top priority.”

Lundberg, 57, who came to Lilly in February after 10 years as head of global discovery research at London-based AstraZeneca
Plc, said his interest in Alzheimer’s is driven by more than shareholder pressure. His mother started showing symptoms
of the disease a few years ago, when she was 80, he said.

“She’d never been sick in her whole life; completely healthy and active,” Lundberg recalled. “But
then I remember she called once and said, ‘I forgot how to make pancakes. Can you tell me the recipe?’ It’s
a phone call I’ll never forget.”

Months later there was a call from a shop saying his mother, who lived in his native Sweden, had forgotten how to get home.
Over the next year, her mood changed, she became aggressive and couldn’t sleep through the night, he said. She was prescribed
one of the approved medicines meant to ease the symptoms of Alzheimer’s, in a class of drugs called cholinesterase inhibitors.

“It didn’t help her at all,” Lundberg said. “She just became worse, I think. It was a progressive
decline. I remember meeting her, and she sat just like you and looked at me. But her eyes were empty.”

She died about a year and a half ago, after falling and fracturing her hip, he said. When Lundberg was ready to leave AstraZeneca,
it was Lilly’s commitment to Alzheimer’s that helped bring him to Indianapolis, he said.

“Of course if you see a company that could help or prevent this, it’s extremely motivating,” said Lundberg.
With Lilly’s two late-stage medicines, “I feel we are in the lead.”

Drugmakers such as New York-based Pfizer and Bristol-Myers Squibb Co., as well as Johnson & Johnson, of New Brunswick,
N.J, aren’t far behind.

Lilly’s semagacestat and an antibody called bapineuzumab from Pfizer and J&J are the most advanced of the treatments
in major clinical trials, Michael Weiner, a professor of medicine, radiology, psychiatry and neurology at the University of
California in San Francisco, and director of the Center for Imaging of Neurodegenerative Diseases at the VA Medical Center,
said July 1 in a telephone interview. Bristol-Myers, based in New York, also has an earlier-stage gamma secretase inhibitor.

Three stages of clinical testing are usually required to gain U.S. regulatory approval for a new treatment.

Medicines on the market include cholinesterase inhibitors such as Tokyo-based Eisai Co. and Pfizer’s Aricept, the world’s
best-selling drug for Alzheimer’s. They work to prevent the breakdown of acetylcholine, a chemical important for learning
and memory, according to the Alzheimer’s Association.

“There’s no evidence that they actually slow the underlying degenerative process associated with Alzheimer’s
disease,” said Richard Mohs, Lilly’s team leader of Alzheimer’s research. “If our medications work,
their effects would be additive to any benefit that you get from a cholinesterase inhibitor.”

Lilly built its Alzheimer’s strategy around using biomarkers in earlier-stage trials, Siemers said. That helped ensure
the drugs were having the intended effect and enabled researchers to find the appropriate dose for final-stage studies, he
said. For semagacestat, the marker was a reduction of beta amyloid in the blood or spinal fluid, while for solanezumab it
was an increase of the protein because the antibody is designed to bind to it.

“We wouldn’t take a compound into Phase 3 unless we had a biomarker response in Phase 2 that told us it was having
the appropriate effect in the brain,” Siemers said.