Lilly’s Eli Lilly and Company LLY announced that its key pipeline candidate, solanezumab, failed to meet the primary endpoint in a phase III study (EXPEDITION3) in patients with mild Alzheimer's dementia. The drugmaker’s shares declined almost 11% on Wednesday following the disappointing news.

Solanezumab is an anti-amyloid beta monoclonal antibody which Lilly was co-developing with TPG-Axon Capital.

Data from the study showed that treatment with solanezumab did not result in statistically significant slowing in cognitive decline – the primary endpoint – compared to placebo. Moreover, while many secondary endpoints favored solanezumab, they had only a small magnitude of benefits.

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Lilly has decided not to pursue the regulatory submissions for solanezumab for the treatment of mild dementia due to Alzheimer's disease. Lilly also said that it will evaluate the impact of these results on the development plans for solanezumab and Lilly’s other Alzheimer’s pipeline candidates.

We remind investors that Lilly changed the primary endpoint for the EXPEDITION3 study in Mar 2016. While the original study design included co-primary endpoints of cognition and function, the company decided to proceed with only a single primary endpoint of cognition.

This is not the first time that solanezumabhas failed to meet the primary endpoint in late-stage trials. Top-line data on solanezumab from two phase III EXPEDITION studies conducted on patients with mild-to-moderate Alzheimer's disease were announced back in Aug 2012. Solanezumab failed to meet its primary endpoints in both the EXPEDITION studies.

The unfavorable results of the EXPEDITION3 study is expected to result in a fourth-quarter charge of approximately $150 million (pre tax), or approximately 9 cents per share (after tax). Lilly will provide an updated 2016 financial guidance and discuss its 2017 financial guidance next month.

Meanwhile, Biogen Inc. BIIB is evaluating its Alzheimer's disease candidate, aducanumab, in phase III studies. Aducanumab is being evaluated in two phase III studies – ENGAGE and EMERGE – in patients with early-stage Alzheimer's disease. Shares of Biogen declined almost 4% as Lilly’s disappointing outcome cast a dark cloud over Alzheimer’s programs like aducanumab which are based on the beta amyloid hypothesis.

The Alzheimer’s disease market has attracted a lot of attention from several companies. However, the successful development of therapies for the treatment of Alzheimer’s disease is challenging and we note that several companies have failed in developing treatments for the same. In fact, Eli Lilly has faced failure before in this field. The company suffered a major setback in Aug 2010, when it had to halt the development of another phase III Alzheimer’s candidate semagacestat (LY450139).

Meanwhile, Pfizer PFE shelved its late-stage Alzheimer’s candidate, bapineuzumab IV, after it failed two phase III studies. Pfizer was developing the candidate in collaboration with Johnson & Johnson JNJ and Elan Corporation. The Alzheimer’s disease market represents a huge commercial potential and a successfully developed product could generate billions of dollars in sales once launched.

Lilly carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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