Yesterday, Eli Lilly and Company (LLY) announced that it will not seek approval from the U.S. Food and Drug Administration (FDA) for its phase III pipeline candidate, arzoxifene, which is being developed for the prevention and treatment of osteoporosis in postmenopausal women and the reduction of risk of invasive breast cancer in postmenopausal women with osteoporosis or low bone mass.

The company released initial results from a pivotal, five-year, phase III study (GJAD GENERATIONS) which showed that arzoxifene met its primary endpoints of significantly reducing the risk of vertebral fracture and invasive breast cancer in postmenopausal women.

However, the study failed to meet its main secondary efficacy endpoints. The candidate failed to show a statistically significant difference in endpoints like non-vertebral fractures, clinical vertebral fractures, cardiovascular events and cognitive function, compared to placebo.

Moreover, safety concerns were observed with the use of the candidate. A higher rate of adverse events like venous thromboembolic events, hot flushes and gynecological-related events, were observed in the arzoxifene arm compared with placebo. Final results from this study will be presented in 2010.

Based on the above results, the company has decided to discontinue trials that are being conducted with arzoxifene. Lilly will be taking a charge of approximately 3-4 cents per share in the third quarter related to the discontinuation of the arzoxifene program. The company maintained its previously announced 2009 earnings per share guidance range of $4.20 to $4.30.

The phase III failure of arzoxifene is a major setback for Lilly. The company was looking to position arzoxifene as its second-generation selective estrogen receptor modulator (SERM) that could have taken over from currently marketed Evista by the end of the decade.

Generic player Teva Pharmaceuticals (TEVA) is looking to launch its generic version of Evista. Key treatments in the osteoporosis market include Merck’s (MRK) Fosamax and GlaxoSmithKline’s (GSK) Boniva among others. Meanwhile, Wyeth (WYE) is looking to gain FDA approval for its osteoporosis candidate, Viviant.

We currently have a Neutral rating on Lilly. We are concerned about the lack of a significant enough pipeline to offset key patent expirations at the company.
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