The market for drugs to treat Alzheimer's disease (AD) has grown steadily since the launch of Aricept (manufactured by Eisai and co-marketed with Pfizer) in 1997. Aricept, approved for the treatment of symptoms of mild to moderate AD, continues to lead the AD market with a 67% worldwide market share representing sales of $1.2 billion in 2003. It is the current "gold standard" first-line therapy and most popular anti-Alzheimer's drug. Nevertheless, the gold standard still leaves a lot to be desired. At best, it brings a modest improvement and a delay in worsening of cognitive and behavioral symptoms. None of the available drugs is able to significantly restore lost cognitive function. Furthermore, the effectiveness of switching anti-Alzheimer's drugs is limited since two of the three existing alternatives are in the same therapeutic class as Aricept and have similar mechanisms of action. According to one study, 36% of patients fail first-line therapy and 44% fail second-line therapy.

The one approved anti-Alzheimer's drug that is in a different therapeutic class from Aricept is Namenda (Forest Laboratories and Lundbeck). Namenda is an NMDA receptor antagonist that regulates the activity of the nerve cell communication chemical glutamate. Imbalances in glutamate levels are thought to be one factor that may contribute to Alzheimer-related memory problems and damage or destroy nerve cells. Namenda is approved for the treatment of symptoms of moderate to severe AD and is often used in combination with Aricept within that patient population.

There are several late-stage drugs in the anti-Alzheimer's pipeline. The majority of the pipeline is derived from a novel therapeutic class of compounds that prevent the effects of beta-amyloid, a neurotoxic peptide that is believed to be a chief culprit in the cause of Alzheimer's disease. Of the major drugs in development, Neurochem's Alzhemed shows the most promise for becoming the first, and potentially the most successful, entrant into the AD market from the beta-amyloid inhibitor class of anti-Alzheimer's drugs. We project a peak U.S. revenue of $528 million in 2013 for Alzhemed for AD. Of the non-beta-amyloid inhibitors in the pipeline, Pfizer's blockbuster drug Lipitor has the potential to become a major complement to other FDA-approved Alzheimer's medications. Expanding the Lipitor label to include AD would be a significant boost for one of the most successful pharmaceutical brands. We project a peak U.S. revenue of $612 million in 2014 for Lipitor for AD. We are initiating coverage of the AD market, with 11 new drug revenue models.

BACKGROUND

AD is a neurodegenerative disorder that affects 15 million people worldwide and is characterized by a progressive loss of memory and cognitive function. AD typically strikes after the age of 60, and the risk for the disease rises as people age. The global burden of AD is immense, given that by 2050 one out of every five people around the globe will be 60 or older.

This progressive disease is divided into mild, moderate and severe forms. Many mild-stage patients either are not aware that they suffer from AD or have not been correctly diagnosed. Consequently, the allocation of patients into the three groups differs widely between the undiagnosed and diagnosed populations. Of the persons who suffer from AD but who have not yet been diagnosed, it is estimated that 47% suffer from the mild form, 29% are in the moderate stage, while 24% have severe Alzheimer's disease. Of the diagnosed group of patients, 20% suffer from the mild form, 40% from the moderate form, and 40% from the severe form of the disease.

Currently, there are no FDA-approved drugs that treat the underlying mechanisms of the disease. The marketed drugs treat the symptoms of the disease. While there is a complex scientific debate about the underlying cause(s) of AD, the disease has been definitively linked with deficiencies in several neurotransmitters and with specific pathological changes within the brain. The major neurotransmitter deficiency involves acetylcholine. The major pathological hallmarks of AD are the appearance of senile plaques that are primarily composed of beta-amyloid and neurofibrillary tangle aggregates.

In 2002, of the 4.4 million individuals with AD in the US, 61% were diagnosed; 39% were receiving some treatment; and 28% were on cholinesterase inhibitor medications. The first acetylcholinesterase inhibitor (AChEI) to arrive on the market was Cognex (Pfizer). However, its usage was limited because of side effects. The 1997 launch of Aricept by Pfizer and Eisai drove the rapid expansion of the AD market. Since then, there have been two other AChEIs introduced in the U.S. market for the treatment of mild to moderate AD. Novartis's Exelon was launched in May 2000 and Johnson & Johnson/Shire's Reminyl was launched in May 2001.

In 2003, Namenda (Forest Laboratories/Lundbeck) became available for patients with moderate to severe AD. Before then, the moderate to severe AD segment had been underserved by the approved drug therapies. Namenda can be used in combination with AChEIs and also offers another treatment option for patients refractory to, or intolerant of, AChEI therapy. Namenda showed moderate efficacy in clinical trials and does not seem to affect the underlying causes of AD. However, it has experienced a rapid uptake by physicians who are eager to have new treatment alternatives. Some early data suggested that 60% of Namenda use is in combination therapy with AChEIs.

CURRENT TREATMENTS

The competitive landscape for the FDA-approved drugs for Alzheimer's Disease looks as follows:

DRUGS IN DEVELOPMENT - Mid Term Outlook

Neurochem's Alzhemed (Phase III stage)
One therapeutic strategy is to allow the production of beta-amyloid to proceed, but to disrupt its aggregation. Neurochem's Alzhemed mimics the glycosaminoglycan moieties of proteoglycans, which are found in amyloid plaques that stabilize and protect beta-amyloid fibrils from proteolytic degradation, a necessary step for their toxic aggregation. Neurochem says Alzhemed interferes with plaque aggregation by binding to beta-amyloid and blocking or delaying fibril formation.

In July, 2004, Neurochem presented interim results from its ongoing open-label Phase II extension study for Alzhemed at the 9th International Conference on Alzheimer's Disease and Related Disorders (ICAD) in Philadelphia. The study showed that overall, approximately 70% of the mild AD patients had stabilized or improved cognitive function tests even after 20 months of enrollment in the study. The company also announced that Phase III trials on the Alzhemed were launched in 70 clinical centers in North America (50 US and 20 Canadian) in June 2004 and will run for a period of 18 months. The Company anticipates launching its Phase III trial in Europe early in 2005.

Myriad Genetics' Flurizan (Phase III stage)
Flurizan has been shown to modulate gamma-secretase and selectively lower levels of beta-amyloid 42, a toxic peptide that is believed to be a chief culprit in the cause of Alzheimer's disease. In transgenic mouse studies, Flurizan demonstrated the ability to reduce brain amyloid levels and prevent memory loss.

On January 12, 2005 Myriad Genetics announced that it has initiated a Phase III clinical trial of Flurizan in patients with Alzheimer's disease. The Phase III trial is designed to determine Flurizan's ability to alter the course of cognitive decline and behavioral change in patients with Alzheimer's disease. The trial will be conducted in approximately 750 patients with mild to moderate Alzheimer's disease, at approximately 100 centers in the United States. The Phase III study is a double blind, placebo-controlled trial, with randomization of patients at enrollment into one of three arms. Patients will be given 400mg or 800mg of Flurizan twice daily or placebo twice daily for the duration of the 12-month study period. The primary efficacy endpoints for the trial will be the change in cognitive function, as measured by the ADAS-cog test, and the change in activities of daily living.

Forest Laboratories' Neramexane (Phase III stage)
Neramexane is an NMDA receptor antagonist with a mechanism of action that is similar to that of Forest Laboratories' marketed drug, Namenda.

On August 31, 2004 Forest Laboratories presented a preliminary analysis of data from the first Phase III trial comparing the safety and efficacy of Neramexane in combination with acetylcholinesterase inhibitors (AChEI) versus AChEI alone for the treatment of patients with Alzheimer's disease. The primary and secondary endpoints of the study were a measure of cognition and functionality and the Clinician's Interview-Based Impression of Change Plus Caregiver Input (CIBIC-Plus), respectively. Primary analyses revealed Neramexane to be safe but was unable to demonstrate statistical significance with regards to both the primary and secondary endpoints. Forest Laboratories will provide additional analyses in the coming months.

Axonyx's Phenserine (Phase III stage)
Phenserine is a potent and selective inhibitor of acetylcholinesterase, an enzyme that breaks down an important neurotransmitter in the brain involved in memory and cognition. Phenserine has been shown to increase memory and learning in rats over a wide therapeutic range. Phenserine works through two mechanisms: (1) it inhibits the degradation of the neurotransmitter acetylcholine, and (2) it inhibits the production of a toxic form of the beta-amyloid protein in the brain that is thought to be a cause of the death of brain cells in AD. Unlike other acetylcholinesterase inhibitors that simply suppress the activity of the enzyme, Phenserine's dual mechanism of action suggests that it not only has the potential to improve memory and cognition but also to slow the progression of the disease.

On February 7, 2005 Axonyx announced that the top-line outcome of its first Phase III clinical trial with Phenserine, in development for mild to moderate Alzheimer's disease (AD), showed that although there were encouraging trends with both Phenserine 10mg and 15mg twice daily, these did not result in a statistically significant improvement over placebo for the protocol's primary endpoints following 26 weeks of treatment. While Phenserine-treated patients performed better in the ADAS-cog and CIBIC assessments, the study's primary endpoints at almost all time points, the outcome was potentially confounded by a better than expected ADAS-cog response in the placebo-treated patients. Axonyx is continuing to further analyze the data and will use this valuable information to optimize the trial designs in the currently planned program.

DRUGS IN DEVELOPMENT - Long Term Outlook

Pfizer's Lipitor (Phase II stage)
The use of statins to lower cholesterol may provide the added benefit of a 79% reduction in the risk of developing AD, according to research presented at the American Academy of Neurology meeting. Pfizer presented results of a study showing that its Lipitor, the leading cholesterol-lowering statin, slows the progression and reduces the deterioration of AD. The AD Cholesterol-Lowering Treatment Trial enrolled 63 mild to moderate AD patients. In this one-year, double-blind study, patients received either Lipitor or a placebo. Patients were allowed to continue use of the FDA-approved Alzheimer's medications (acetylcholine esterase inhibitors). A total of two-thirds of patients on Lipitor derived some clinical benefit, with half of these patients showing disease stabilization or improvement. The results indicate not only a slowing in deterioration of function and memory but also an improvement in mood and behavior. No prior clinical trials have actually shown long-term improvement in patients with AD. Cholesterol-lowering drugs other than statins were not associated with reduced risk.

Teva Pharmaceutical Industries' Agilect (Phase II stage)
Agilect (Rasagiline) is a potent, selective, irreversible monoamine oxidase (MAO) type-B inhibitor. It is a useful agent in the symptomatic treatment of Parkinson's disease. Rasagiline and its analogs are also actively under investigation for AD. They apparently enhance memory and learning. Rasagiline may also improve mood, motivation and age-related memory decline in the aging but nominally well adult population. By inhibiting MAO-B, rasagiline prevents the deamination of the monoamines dopamine and phenethylamine (PEA), thereby increasing their concentration in the synapse and curbing production of the reactive oxygen species, hydrogen peroxide. High concentrations of hydrogen peroxide are associated with increased oxidative stress.

According to Teva, as of May 4, 2004, there were two Agilect trials in the Phase II stage for AD. One is in combination therapy with Aricept and one is in monotherapy. It was reported that the combination therapy was underway and the monotherapy trial was not. The earliest the data can be expected is two years according to the company.

Prana Biotechnology Limited's PBT-1 (Phase II stage)
Melbourne, Australia-based Prana Biotechnology Limited has established that PBT-1 (Clioquinol) works by scavenging copper and zinc to prevent amyloid plaque formation. Clioquinol was first introduced as a diarrhea medication decades ago, but was eventually pulled off the market because it caused nerve damage and blindness in thousands of people, particularly Japanese.

On November 3, 2004 Prana announced the results of the open label 84-week "Extension Study" of its Phase II clinical trial of PBT-1 (Clioquinol) study, also known as the CQAD study. The Extension Study data demonstrated that PBT-1 treatment for Alzheimer's appears to slow the expected disease progression by about half. The rate of decline in PBT-1 treated patients, compared to the predicted rate of decline, suggests that the drug has a disease-modifying treatment effect, not simply a cognition enhancement effect. Based on the history of the drug, we await more detailed information on the drug's safety profile.

Competitive Landscape for Anti-Alzheimer's Drugs in the Pipeline

The competitive landscape for the mid- to long-term pipeline for Alzheimer's Disease looks as follows:

Sizing Up The Anti-Alzheimer's Pipeline

The majority of the pipeline is derived from a novel therapeutic class of compounds that prevent the effects of beta-amyloid, the major characteristic pathological feature in AD. Of the major drugs in development, we believe that Neurochem's Alzhemed has the most potential to be the most successful entrant into the AD market from the beta-amyloid inhibitor class of anti-Alzheimer's drugs. Alzhemed has shown in Phase II trial that a high percentage (70%) of the mild AD patients had stabilized or improved cognitive function tests even after 20 months of enrollment in the study. Slightly behind Alzhemed is Myriad Genetics' Flurizan for which a Phase III clinical trial initated enrollment in January of 2005. In comparison to Alzhemed, less is known about the efficacy and safety of Flurizan in AD patients. Further out on the time horizon is Prana's PBT-1, which appears to slow the expected disease progression by about half.

Of the non-beta-amyloid inhibitors in the pipeline, Pfizer's blockbuster drug Lipitor shows promise for becoming a major complement to other FDA-approved Alzheimer's medications.

The estimated 2010 worldwide revenues and market shares for the different therapeutic classes of anti-Alzheimer's drugs are shown below.

REVENUE MODEL UPDATES
We have updated and added 11 drug revenue models for Alzheimer's Disease:

Aricept-Pfizer/Eisai-Approved
We project peak annual U.S. revenues for Aricept for Alzheimer's Disease of $809 million in 2005.

Namenda-Forest Laboratories-Approved
We project peak annual U.S. revenues for Namenda for Alzheimer's Disease of $448 million in 2011.

Exelon-Novartis-Approved
We project peak annual U.S. revenues for Exelon for Alzheimer's Disease of $188 million in 2010.

Reminyl-Johnson & Johnson/Shire-Approved
We project peak annual U.S. revenues for Reminyl for Alzheimer's Disease of $205 million in 2012.

Alzhemed-Neurochem-Phase III
We project peak annual U.S. revenues for Alzhemed for Alzheimer's Disease of $528 million in 2013.

Flurizan-Myriad Genetics-Phase III
We project peak annual U.S. revenues for Flurizan for Alzheimer's Disease of $230 million in 2014.

Neramexane-Forest Laboratories-Phase III
We project peak annual U.S. revenues for Neramexane for Alzheimer's Disease of $205 million in 2013.

Phenserine-Axonyx-Phase III
We project peak annual U.S. revenues for Phenserine for Alzheimer's Disease of $186 million in 2014.

Lipitor-Pfizer-Phase II
We project peak annual U.S. revenues for Lipitor for Alzheimer's Disease of $612 million in 2014.

Agilect-Teva Pharmaceutical Industries-Phase II
We project peak annual U.S. revenues for Agilect for Alzheimer's Disease of $294 million in 2015.

PBT-1-Prana Biotechnology-Phase II
We project peak annual U.S. revenues for PBT-1 for Alzheimer's Disease of $219 million in 2014.