Ken Kam's Best Ideas Blog

Elan is developing the vaccine AN-1792 in a 50-50 partnership with Wyeth (nyse: WYE), formerly the pharmaceutical division of American Home Products called, Wyeth-Ayerst Laboratories.

In July 1999, Elan researchers reported that mice immunized at a young age were protected from Alzheimer’s. In animals that already had the disease, the disease was halted and in some cases reversed -- a truly remarkable result. If only mice had health insurance!

In 2001, Elan completed a Phase 1 trial involving 100 patients over 1 year, which showed AN-1792 to be safe in humans and showing an immune response.

Unfortunately, in January 2002, a Phase II trial involving 375 patients was halted after 12 patients developed encephalitis. Although dosing stopped, the patients in the study were followed until December 2002. Elan claimed the results supported their approach because they, “include no worsening on a neuropsychological test battery, including the memory component, at 12 months in patients who developed an antibody response to AN-1792, compared to the control group.” That’s just PR spin and when the best you can say is that patients on a drug do “no worse” than patients who take a placebo, that drug is a failure.

It appears that AN-1792, in some form, might still have potential. By studying the 12 patients from the Phase II trial who developed encephalitis, researchers found that AN-1792 can provoke a hostile reaction from the immune system’s T-cells, which can lead to encephalitis. But, it turns out that one end of the protein from which the vaccine was derived does not trigger a hostile T-cell reaction and it looks just as effective as the original drug in treating mice.

This research led the way for Elan’s second-generation vaccine product which was developed by using Wyeth’s immunoconjugate technology to cut away the part of the molecule that provokes the T-cell response. Elan’s PR machine says this second generation product is currently in “late stage” pre-clinical trials -- which really means that it is at a very early stage and has a long way to go – as much as 8 years if it is successful. There are two other Alzheimer programs, about which little has been said. One is a Beta Secretase inhibiter, which they have partnered on with Pfizer. The other is a Gamma Secretase inhibitor that they are currently developing on their own.

Alzheimer’s disease affects an estimated 4 million Americans -- a number projected to hit 15 million by 2050. Existing drugs can only slow the progression of dementia by a few months at best so there is a huge unmet need. It is not necessary for Elan to cure Alzheimer’s in order to have a blockbuster on its hands. A drug that simply slowed the process down by more than a few months would be a big improvement over what is currently available.

Although Alzheimer’s is a huge opportunity I think Elan’s drug candidates are too early in the development process to be able to value. New drugs can often take more than 10 years to go from the pre-clinical stage to a marketed product -- certainly longer than most people’s investment horizon. There will be milestones along the way, which can dramatically change the market’s valuation of this program, but the milestones will be scientific, not business ones. I don’t make bets on science because I don’t have any special expertise in predicting how a “future” clinical trial will turn out. I don’t think these development programs make good “stock” investments until clinical trial data shows me that the drug works. Only then is it possible to make business projections that can justify an investment with a reasonable time horizon.

The Bottom Line: The initial product is probably dead. The second generation looks like it might have potential but it has a long way to go. Think of this as a lottery ticket, not a reason to invest in the stock but if you own it, it might hit the jackpot.