Having failed in two late-stage clinical trials, Pfizer (NYSE:PFE) and Johnson & Johnson (NYSE:JNJ) have decided to wind up the development of Alzheimer drug, Bapineuzumab. The companies were conducting trials in order to get approval from the U.S. Food & Drug Administration (FDA). After last month’s failure in clinical trials on patients with a certain gene which could lower the risk of Alzheimer’s disease, the drug also failed to show any improvement in patients who do not have that gene.  Below we take a look at how this event impacts the valuation of these two companies.
Our current price estimate for Pfizer stands at $25, implying a premium of nearly 5% to the current market price while our price estimate for JNJ stands at $74, nearly 10% above the market price. We are in process of revising our estimates to reflect the recent developments.
Many pharmaceutical giants including Pfizer, Johnson & Johnson, Eli Lily have been striving hard to find an effective drug for Alzheimer’s as there is no complete cure available for the disease presently and the current treatment only improves the patient’s condition by a little. The Alzheimer drug market has huge unmet demand as nearly 36 million people are estimated to suffer with Alzheimer’s disease or other dementia and, without any effective treatment, the number could surge to nearly 66 million and 115 million by 2030 and 2050, respectively.
In the U.S. alone, approximately 5.4 million people suffer from Alzheimer’s and is projected to increase to 15 million by 2050.  Hence, any breakthrough could prove to be very beneficial for the producers as it will help fend off revenue losses from patents expiry of other blockbusters in the coming years.
While the development of the drug has been dumped, we never really expected the drug to show any positive results and get approval. So we had not included any sales expectations in our models for either companies. But an opposite result could have boosted the sales to a large extent and consequently our price estimates for Pfizer and Johnson & Johnson.Notes:
- Pfizer and Johnson and Johnson Ditches Alzheimer Drug After Failed Testing, Medical Daily, August 07 2012 [↩]
- The Facts on Alzheimer’s Disease, American Health Assistance Foundation [↩]