Seeking Alpha
Research analyst, long/short equity, tech
Profile| Send Message|
( followers)  

Recent efforts for developing effective Alzheimer drugs haven’t been successful. Yet, Merck (NYSE:MRK) hopes to do something different with its BACE Inhibitor, MK-8931. The company presented Phase I clinical trial data in July, which suggested that the drug did reasonably well in reducing amyloid β, and may offer an opportunity to further understand the role BACE1 inhibition plays in the underlying pathology of Alzheimer’s disease.

The company is expected to come up with Phase II clinical trial results by the end of the year. But the odds are against the drug as Eli Lily had a failure with a drug that works with similar mechanism. What this essentially implies is that while the market may not be expecting too much from the Phase II results, a positive surprise can result in meaningful jump in the stock. This is evident from the surge in Incyte's market value after it announced positive pancreatic cancer data. However, the chances for Merck are slim.

Merck has been struggling for the past few quarters due to the loss of exclusivity of certain key drugs including Singulair, competition from generics and the negative impact of currency movements. To revive its growth, the company is banking on its research in areas like diabetes, cancer immunotherapy and neuroscience. Merck believes that its anti-PD-1 therapy for oncology and ACE inhibitor for Alzheimer’s disease have the capability to change the course of medication, and, if successful, can lift its growth outlook.

Brief Overview of Global Alzheimer Market

The research firm BCC Research expects the global Alzheimer’s disease market to grow from an estimated $8 billion in 2009 to $9.6 billion by 2014, growing at a compound annual growth rate of 3.7%. Within this market, diagnostics and biomarkers are expected to grow rapidly at a compound annual growth rate (CAGR) of 20%. The sales from this segment stood at $1.2 billion in 2009, and are likely to touch $2.9 billion by 2014, thus constituting roughly 30% of the overall market. In addition to this, the imaging sector will grow at a CAGR of 19%. This suggests that most of the growth is likely to come from diagnostics and imaging where Merck has no presence.

Source: BCC Research.

Our price estimate for Merck stands at $51.60, implying a premium of about 10% to the market price.

Disclosure: No positions.

Source: Is There Much Hope For Merck In Alzheimer's Drug Clinical Trials?