Lilly Inks Deal With AC Immune For Potential Alzheimer's Drug

Eli Lilly & Company’s (NYSE:LLY) signed a collaboration agreement with Swiss biotech AC Immune SA (NASDAQ:ACIU) to jointly develop tau aggregation inhibitors, which have the potential to treat Alzheimer's disease (AD) and other neurodegenerative diseases.

Per the deal, AC Immune will develop the tau aggregation inhibitors by leveraging its proprietary Morphomer platform. While AC Immune will conduct the phase I studies mainly on its lead molecule, ACI-3024, Lilly will fund and take care of further development and also get worldwide commercialization rights for the tau aggregation inhibitors in the area of AD.

Lilly will make an initial upfront payment of 80 Swiss francs to AC Immune and purchase $50 million note, convertible to equity position in AC Immune. In addition, AC Immune will be eligible to receive 60 million Swiss francs as potential near-term development milestones, up to approximately 1.7 billion Swiss francs in other potential development, regulatory and commercial milestones and low double-digit royalties.

Lilly has a decent pipeline for Alzheimer’s disease and other neurological diseases. Its lead AD candidate is flortaucipir, which is in phase III development.

Alzheimer’s, a fatal illness that causes progressive decline in memory, has always been a highly challenging area with not much progress being made in spite of significant investments (both funds and resources). Several companies have failed to develop safe and effective treatment options for this deadly brain disease.

Lilly has had its share of failures in AD. In June this year, Lilly discontinued two late-stage studies on its AD candidate lanabecestat on recommendation of the independent data monitoring committee (IDMC).

In November 2016, Lilly’s key candidate solanezumab failed to meet the primary endpoint in a late-stage study that was conducted in patients with mild dementia due to AD. Lilly decided to drop the development of solanezumab. Lilly also suffered a major setback in August 2010 when it had to halt the development of another phase III Alzheimer’s candidate, semagacestat.

Lilly’s shares have risen 35.4% this year so far compared with the industry’s increase of 7.5%.

Among other companies, in May this year, J&J (NYSE:JNJ) halted development of atabecestat, its investigational BACE inhibitor, which was being developed for pre-clinical stage Alzheimer’s disease due to safety concerns.

In February this year, Merck (NYSE:MRK) discontinued the second late-stage study evaluating its BACE inhibitor verubecestat for the treatment of prodromal Alzheimer’s disease as its success was unlikely.

Despite the setbacks, companies continue to invest heavily in developing Alzheimer’s disease treatments, given the high commercial potential in this market. Success in this area means huge returns. This is because more than five million Americans are living with Alzheimer’s disease with the numbers expected to triple by 2050 (Data: Alzheimer's Association). The market has immense commercial potential and companies coming out with new treatments could rake in billions of dollars in sales.

Lilly currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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