Whether you want to call it the pause that refreshes or the calm before the storm, investors should not expect as much news from the med-tech industry over the next few weeks. That said, business continues and investors still have data and information to process.

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Lilly - Somewhere Between a Home Run and a Bunt
Lilly
(NYSE:LLY) reported last week that its Alzheimer's drug candidate solanezumab showed decidedly mixed performance in pivotal studies of mild-to-moderate patients. Like bapineuzumab, the drug that Johnson & Johnson (NYSE:JNJ) and Pfizer (NYSE:PFE) were attempting to develop for Alzheimer's, solanezumab failed to meet its primary endpoints. Unlike bapi, though, this drug seemed to slow the pace of decline in patients with mild cases.

Unfortunately, these results may create a little hope but also a lot of confusion and uncertainty. It is unlikely that Lilly could get FDA approval, based on this data, so it's almost certain that the agency will want a follow-up study to confirm the effect seen in the mild patients. It's also uncertain how much this indication will be worth. While an effective Alzheimer's drug is likely to be worth $5 billion to $10 billion (or more), a disease-slowing drug is not going to be worth that much. There's value here, certainly enough to continue developing the drug, but Lilly shareholders need to understand that this isn't the blockbuster the company was hoping for it to be.

Safety Concerns Rattling the Hep C Market
The race to develop new therapies for hepatitis C (HCV) has spurred multiple seven-figure deals and a great deal of investor enthusiasm. As is so often the case with drugs early in development, though, the sector is exceptionally volatile as each incremental piece of data alters the landscape of the likely winners.

Last week, Bristol-Myers Squibb (NYSE:BMY) announced that it was scrapping BMS-986094, a nucleotide polymerase inhibitor that was both one of its more promising HCV compounds and the centerpiece of its early 2012 $2.5 billion acquisition of Inhibitex. The FDA had placed this drug on clinical hold after nine patients were hospitalized and one died from heart failure, and though the mechanism of action that led to the serious side effects has not been identified (or at least announced). Bristol-Myers apparently thinks it's an insurmountable issue.

SEE: Analyzing An Acquisition Announcement

This is not just a Bristol-Myers problem, though. In the wake of the news of BMY's drug, the FDA placed Idenix's (Nasdaq:IDIX) IDX184 on a partial clinical hold. IDX184 and Bristol-Myers' drug share the same active metabolite, so the concern is easy to understand. Although Idenix has reportedly not seen the same problem with cardiotoxicity, the company will be conducting echocardiograms on patients who've taken the drug to confirm its safety.

On August 27, though, Idenix announced that the FDA has also put a clinical hold on IDX19368 - an earlier-stage nucleotide polymerase inhibitor that has not yet been administered to human test subjects. Like IDX184, this compound is a prodrug, but the FDA is clearly taking a "safety first" outlook with these compounds.

At this point, Gilead (Nasdaq:GILD) still has the most advanced nucleotide polymerase inhibitor in clinical trials. GS-7977 (acquired in the Pharmasset deal) is also an NS5B nucleotide inhibitor (like the Bristol-Myers and Idenix drugs), but it's a different drug and thus far has not shown similar safety issues. Nevertheless, investors will likely be watching these developments with the FDA very closely.

SEE: Earnings Forecasts: A Primer

The Bottom Line
Although this has been a solid year for med-tech, some sub-sectors are starting to lag a bit during this late summer rally; for what it's worth, it's not uncommon for healthcare stocks to "drift" in the late summer. The Health Care Select Sector SPDR (ARCA:XLV) is up 12.84% year-to-date, below the the 13.1% return of the S&P 500. The iShares Dow Jones U.S. Pharmaceuticals ETF (ARCA:IHE) is up 14.6%, while the iShares Dow Jones U.S. Medical Devices ETF (ARCA:IHI) is up 10.9%. The SPDR Biotech ETF (ARCA:XBI) continues its tear, having risen almost 33.2% year-to-date.

At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

Tickers in this Article: LLY, BMY, IDIX, GILD

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