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Eli Lilly and Company (LLY - Analyst Report) recently announced its decision to scrap one of three pivotal phase III studies being conducted with its rheumatoid arthritis candidate, tabalumab. Tabalumab is an anti-BAFF monoclonal antibody which was being evaluated in the FLEX-M study for the treatment of moderate-to-severe rheumatoid arthritis in patients who have not responded adequately to methotrexate therapy.

Decision Based on Interim Analysis

The company’s decision to halt the study was based on a planned interim futility analysis which showed insufficient efficacy. We note that the study was not discontinued due to safety issues.

Eli Lilly said that two other phase III studies with tabalumab in the rheumatoid arthritis program will continue. These studies are being conducted in different patient populations – the company said that it will not enroll new patients in the rheumatoid arthritis program unless additional analysis of these studies is completed in early 2013. Tabalumab is also being evaluated in an open-label extension study and other smaller studies.

Meanwhile, tabalumab continues to be evaluated in a phase III program for systemic lupus erythematosus – the company said that it will continue enrolling patients for this program.

Eli Lilly expects a post-tax charge of 2 cents in the fourth quarter of 2012 due to the discontinuation of the FLEX-M study.

Our Take

The discontinuation of the FLEX-M study due to lack of efficacy is disappointing. However, we note that Eli Lilly has another promising rheumatoid arthritis candidate, baricitinib, in its pipeline. Eli Lilly and partner, Incyte Corporation (INCY - Analyst Report) recently presented encouraging phase II data on the candidate, which is being developed for the treatment of patients with moderate-to-severe rheumatoid arthritis who had an inadequate response to treatment with methotrexate. We expect investor focus to remain on baricitinib and other pipeline candidates.

We currently have a Neutral recommendation on Eli Lilly, which carries a Zacks #3 Rank (Hold). Large-cap pharma stocks that carry a Zacks #2 Rank (Buy) include Johnson & Johnson (JNJ - Analyst Report) and Novo Nordisk (NVO - Analyst Report).

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