http://news.investors.com/article/615166/201206181552/alzheimers-disease-offer-high-risk-high-reward.htm?ven=yahoocp,yahoo

f there's one thing that makes drugmakers defensive stocks, it's that no matter what the economic cycle, Americans keep getting older. But one of the most common problems of old age — Alzheimer's disease — is still so mysterious that investing in it requires a biotech-like appetite for risk.

This year, Eli Lilly (LLY) and an alliance of Johnson & Johnson (JNJ), Pfizer (PFE) and Elan (ELN) will formally ask the Food and Drug Administration to approve their drug candidates for treating Alzheimer's disease. Both of them are in phase-three testing.

The problem is that based on their previous results, analysts don't give them high chances of success. Morningstar analyst Damien Conover gives Lilly's drug solanezumab about a 30% chance of succeeding, and just 25% for the J&J-Pfizer-Elan product, bapineuzamab. The typical late-stage drug candidate, he says, has about a 60% chance.

If they do succeed, however, the reward could be huge. For now, there are no drugs on the market that actually slow the progress of Alzheimer's disease. Alzheimer's Disease International estimates there are 36 million people with the condition in the world today, a number it expects to nearly double by 2030. Analysts say a drug that can slow the disease — even without curing it — would be a multibillion-dollar blockbuster.

"It's an important space to watch," said Les Funtleyder, health care strategist with investment firm Miller Tabak.

No one knows for sure what causes Alzheimer's disease, but both solanezumab and bapineuzamab were developed on the theory that beta amyloids are the culprit. Amyloid is a protein normally found throughout the body, but in Alzheimer's patients it turns into a form called beta amyloid, which is toxic to neurons. Eventually, the beta amyloid and the dead neurons build up to form visible plaques in the brain.

In fact, Lilly has already released one product based on this. Earlier this year it won approval for Amyvid, an injectable radioactive agent that helps physicians detect amyloid plaques via PET scan. On June 1, Lilly announced that Amyvid is now available in 16 U.S. markets, and that it would launch a training program for its use.

Of course, diagnosing the disease early isn't much help unless you can do something to treat it. Lilly's previous drug candidate targeting beta amyloid, semagacestat, was shot down in 2010 after a phase-three trial found some patients' memories and functioning were actually getting worse. Lilly pressed on with solanezemub. It targets beta amyloids in a different and possibly less dangerous manner.

"Semagacestat was a small molecule that prevented an enzyme called gamma secretase from 'snipping off' part of a larger protein to release beta amyloid," Lilly spokeswoman Stephanie Prodouz told IBD via email. "This was thought to reduce production of beta amyloid in the brain but may affect other proteins in addition to the amyloid precursor protein."

Lilly Likes Solanezumab Results

Solanezumab, on the other hand, is an antibody that binds the beta amyloid after it is produced, preventing clumps and plaques from forming. It is not believed to affect gamma secretase, Prodouz says.

Bapineuzumab is also an antibody, but it comes with its own checkered past. In 2009, Elan had to cut the highest dose from its trial population when some patients were suffering water retention in the brain. This carries the risk of swelling and inflammation.

Elan Chairman Robert Ingram has said that final results will be out midyear. His recent remarks have given the impression that he's managing expectations.

"The FDA won't approve the drug if it doesn't have a single benefit, but they are signalling that they will be very reasonable about getting something to patients that has a modicum of benefit," he said at Elan's annual shareholder meeting last month.

If both these drugs fail to show even a modicum of benefit, it will be bad news for the beta amyloid hypothesis. But earlier-stage candidates might yet make it, especially now that federal money is involved.

Last month, the Obama administration announced a National Plan to Address Alzheimer's Disease, backed by a $156 million commitment to back research. As its first project, it chose to collaborate with Roche (RHHBY) unit Genentech in a very early-stage study of its compound crenezumab.

Crenezumab is intended to actually prevent Alzheimer's from developing in the first place. But since you normally can't predict who will get the disease, proving prevention can be complicated. Genentech is going to be giving the drug to a large clan in Colombia with a genetic marker tied to early-onset Alzheimer's. Over the years, it will be watching to see how the treated group compares to the placebo group.

The need for such laborious studies is one reason the federal government getting involved is a plus, says Funtleyder.

"Companies are kind of reluctant to make the investment because the odds of failure are so high," he said. "Some governmental encouragement is probably on the horizon for drugs like this."