What's going on?
Pharmaceuticals company Eli Lilly announced on Wednesday that an Alzheimer’s drug it was developing failed to significantly help patients in clinical trials: it was bad news for Lilly’s stock price and sad news for Alzheimer’s sufferers hoping for progress towards a cure.
What does this mean?
Alzheimer’s has proven to be an exceptionally difficult disease to treat. While treatments for cancer and heart disease have made great strides in recent decades, Alzheimer’s sufferers have seen only a fraction of that improvement in their prospects. Lilly’s unsuccessful drug was targeting the buildup of “plaque” in the brain, which many believe to be the cause of Alzheimer’s. Wednesday’s announcement arguably throws some doubt on the theory that targeting that plaque will successfully treat Alzheimer’s – although there are other drugs in development that are trying to target it in different ways which could prove successful.
Why should I care?
For the stock: Eli Lilly is a diversified company – it sells various other drugs.
Developing this Alzheimer’s drug was a big bet for Eli Lilly: it took many years of research and cost billions of dollars. But, Lilly didn’t have all its eggs in one basket – it also sells and develops drugs for cancer and other diseases. Similar to having a diversified portfolio as an investor, Lilly’s varied drug portfolio mitigates the negative impact that a single failure can have (although the stock was still down 10% on Wednesday).
The bigger picture: Failures often happen – which is one reason it makes sense to let drug companies make a big profit when they succeed.
There has been a lot of political pressure in the past year or so to limit the prices that companies can charge for the drugs they sell. Some of the uproar stemmed from companies that were massively hiking the price of existing drugs, which many saw as simple price gouging. It is, however, important to remember that developing drugs is a risky and expensive business. Companies will likely only be incentivized to take the necessary risks to develop life saving drugs if they are allowed to profit accordingly when their efforts succeed.