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Eli Lilly and Company (LLY - Analyst Report) recently announced a pipeline setback with its oncology candidate, enzastaurin, failing in a phase III study. Eli Lilly was evaluating enzastaurin as a monotherapy for the prevention of relapse in patients with diffuse large B-cell lymphoma (DLBCL).

Results from the phase III PRELUDE study showed that enzastaurin failed to show a statistically significant improvement in disease-free survival compared to placebo in patients at high risk of relapse following treatment with Roche’s (RHHBY - Analyst Report) Rituxan (rituximab)-based chemotherapy.

The company said that safety data was similar to data presented from earlier studies. Full results from the PRELUDE study will be presented at an upcoming meeting.

With enzastaurin failing to show a statistically significant improvement in the PRELUDE study, Eli Lilly has decided to discontinue development of the candidate. As a result, the company expects to take a charge of about $30 million in the second quarter of 2013.

Our Take

The discontinuation of the development of the phase III oncology candidate is highly disappointing - enzastaurin was one of the candidates in the company's pipeline for which a new drug application could have been filed later this year.

Eli Lilly currently carries a Zacks Rank #3 (Hold). Eli Lilly is currently going through a patent cliff with its erstwhile blockbuster drug, Zyprexa, having gone off-patent. Later this year, another blockbuster drug, Cymbalta, will lose exclusivity. In this scenario, Eli Lilly’s pipeline needs to deliver.

The Animal Health business and the diabetes franchise should provide some downside support. We are also pleased to see Eli Lilly pursuing small acquisitions and in-licensing deals to boost its pipeline.

Currently, companies like Santarus, Inc. and Jazz Pharmaceuticals (JAZZ - Analyst Report) look attractive in the biopharma space. Both are Zacks Rank #1 (Strong Buy) stocks.

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