UPDATE 3-Myriad, Lundbeck Alzheimer's drug fails key study

Mon Jun 30, 2008 8:31am EDT

(Updates with Myriad stock price, further analyst comment)

By Gelu Sulugiuc

COPENHAGEN, June 30 (Reuters) - Flurizan, an experimental drug for Alzheimer's disease, failed to help patients in a pivotal clinical test, dealing a blow to its backers Myriad Genetics (MYGN.O) and Lundbeck (LUN.CO).

Danish pharmaceutical group Lundbeck said on Monday it would take a $100 million writedown in the second quarter following the Phase III test setback, as its shares fell 11 percent.

U.S.-based Myriad said in a separate statement that it would discontinue development of the drug.

Myriad stock lost a more modest 6 percent in pre-market dealings, as investors took comfort from the fact that reduced spending would make the firm profitable earlier than expected.

Flurizan's failure to improve cognition or help patients with day-to-day activities contrasts with recent encouraging results with a rival treatment from Wyeth WYE.N and Elan ELN.I, which proved effective for some people [ID:nL17692292].

"The data is disappointing and it means that Lundbeck has wasted half a billion Danish crowns on this project," said Jyske Bank analyst Frank Andersen.

Lundbeck bought the European rights for the Myriad drug last month for $100 million, hoping it would replace some of the revenue shortfall when blockbuster antidepressant Cipralex/Lexapro loses its patent in major markets in 2012-2014.

LUNDBECK SEEKS OTHER DEALS

Lundbeck Chief Executive Ulf Wiinberg said he would continue to search for other licensing deals within the central nervous system field. "Our pipeline is not enough to offset the 2012-2014 challenge," he told reporters. "We are looking at any deal that has scientific merit to meet patients' needs in the market."

The company's chief financial officer, Anders Gotzsche, said Lundbeck would have 4 billion Danish crowns ($847 million) of cash in hand by the end of the year, giving it considerable firepower for doing deals.

"We have enough resources to back up potential in-licensing or acquisitions we are looking into," he said.

Myriad said it would spend $8 million in the next two quarters to wrap up its Flurizan programme, but added reduced spending would make it profitable next year.

"We are disappointed that Flurizan failed to achieve significance in this study, and we will now discontinue development of this compound," Myriad President and CEO Peter Meldrum said in a statement.

"The discontinuation of Flurizan will reduce our pharmaceutical development spend substantially and should enable Myriad to achieve profitability next year, ending June 30, 2009."

During fiscal 2008, Myriad spent some $60 million on developing Flurizan.

MYRIAD DIAGNOSTIC PLAY

Geoffrey Meacham, an analyst with JP Morgan, said failure had been the most likely scenario for Flurizan and he argued investors were now likely to focus on Myriad's potential in diagnostics.

"We would expect to see significant support for the stock due to investor interest in the predictive medicines diagnostic business, which is growing revenues at 51 percent," he said in a note, reiterating an "overweight" stance on the stock.

Many drugmakers are currently working on new approaches to tackling Alzheimer's, the most common cause of dementia, that can modify the disease rather than just relieving its symptoms.

Analysts believe any successful product would be a major seller with annual revenues of more than $5 billion and possibly well above $10 billion.

Existing acetylcholinesterase inhibitor drugs, like Eisai (4523.T) and Pfizer's (PFE.N) market-leader Aricept, can reduce symptoms but do not modify the course of the disease.

By 1215 GMT, Lundbeck shares were down 11 percent at 106.75 crowns, while the DJ Stoxx European drugs index .SXDP was up 1 percent. Myriad traded at $45 on the pre-market, down 6 percent from Friday's close. (Additional reporting by Ben Hirschler in London; Editing by Louise Ireland, Paul Bolding)