Since 1998 over 100 attempts have been made to develop an Alzheimer's drug, and each endeavor has gone down in flames. However, Merck's (MRK) novel Alzheimer s drug, MK-8931, has shown positive results in a Phase II study and will soon be entering a Phase III study, may be the first to succeed where others have failed. Though not fully determined, it is believed that the formation of amyloid peptides that lead to amyloid plaque deposits in the brain is a primary contributor to the underlying cause of Alzheimer's disease. MK-8931 is an investigational oral β-amyloid precursor protein site-cleaving enzyme (BACE) inhibitor, and has been shown to reduce amyloid in the brain by as much as 90 percent.
Amyloid is a protein that occurs in the body, and research has shown that people with much higher levels are at much higher risk of developing Alzheimer's. BACE is believed to be a key enzyme in the production of amyloid and works like scissors to release the sticky amyloid which creates the plaque that builds up in the brains of Alzheimer's patients. Evidence has suggested that inhibiting BACE decreases the production of amyloid β peptides, which in turn may reduce the plaque formation and slow the progression of Alzheimer's.
The Data Monitoring Committee (DMC) recently completed its interim safety analysis for the Phase II/III study that included 200 patients with mild to moderate Alzheimer's. The DMC recommended that the trial continue and recruit additional patients, with no changes to the protocol. The first additional study will analyze up to 1,960 patients with mild to moderate Alzheimer's that already have significant plaque buildup, while the second study will look at 1,500 patients at an earlier stage, with mild cognitive impairment and memory difficulties. The first study is expected to last 18 months, while the second study is slated for two years. Merck will also initiate a new Phase III study in patients with amnestic mild cognitive impairment due to Alzheimer's disease, also known as prodromal Alzheimer's disease.
More than 5 million Americans suffer from Alzheimer's disease, and the number is expected to reach 15 million by 2050. The disease is considered one of the U.S.'s top 10 killers. At this time the only drugs approved for Alzheimer's eases the symptoms for a few months, however the disease continues to progress while ravaging the brain. The cost of caring for Alzheimer's patients exceeds those of heart disease and cancer, coming in at $109 billion annually. If approved, MK-8931 would be a big boon to Merck's revenue, as the market for the current Alzheimer's drugs are already at $5 billion annually.
SAFETY AND BENEFIT ISSUES WITH BACE INHIBITORS ARE STILL IN QUESTION
Though BACE inhibitors have shown to be the most successful drug in reducing production of amyloid, there have been safety issues. In June Ely Lilly (LLY) halted its Phase II trial of its BACE inhibitor, LY2886721, due to liver abnormalities that showed up in about 10% of the patients during routine tests. Roche (RHBBY) also ended its Phase I trial of its BACE inhibitor drug, RG7129-- but unlike Lilly, Roche declined to give a reason for terminating the program. However, AstraZeneca (AZN) continues tests on its early stage BACE inhibitor.
The other issue with BACE inhibitors is that various medications have been used to reduce beta amyloid before and there were no clinically meaningful benefits for patients. However, those patients were already diagnosed with the disease, and there have been some results that indicate lowering beta amyloid may be helpful for people who haven't yet begun to show symptoms of memory loss. At this time Merck is targeting patients at an earlier stage before the disease has progressed. And even if MK-8931, at best, only delays the progression of the disease, the company would still have a blockbuster drug with the potential of peak sales at $5 billion annually.
The failure of a number of these drugs has some researchers doubtful that amyloid plaque found in patients' brains actually causes the disease. However, the other side of the argument sees that the treatments that were tried were either not strong enough or given too late -- after the damage from the plaque had been done. Merck's studies are designed to resolve those issues. Darryle Schoepp, Merck's vice president of neuroscience, commented in an interview that the company hopes the study will show whether or not amyloids do indeed contribute to Alzheimer's:
"Now we can get an answer on the amyloid hypothesis. We will have the data that will tell one way or the other."
Merck's CEO, Kenneth Frazier, is aware that the drug faces challenges. But if successful it could be the blockbuster that the company desperately needs, as it would bring back what the company was once known for -- its ambitious R&D.
"At some point in this business, you have to be going for game-changing therapies. We know that we're studying a compound and we're also trying to prove a fundamental hypothesis at the same time. That makes you really try to be reserved a little bit, but I've got to tell you, behind all of those sort of intellectual comments is a very visceral excitement that this could be the kind of compound that changes the world."
MERCK FACES CHALLENGES DESPITE ITS RISING STOCK PRICE
Though its stock may not reflect it, as it has beaten the Dow, Merck has had a tough year. The stock's performance, up 18% YTD, is in the bottom half of the index compared to its rival companies. The company has faced a patent cliff most notably when its top drug, Singular, came off patent in August 2012. At one time peak sales were at $5.5 billion; however, since coming off patent sales are down over 70%. The company still has a pipeline of 20 drugs in Phase II, 13 in Phase III, and 9 in regulatory review, including some that have the potential to be blockbusters.
One of the drugs Wall Street analysts touted as a blockbuster that would alleviate some of the revenue loss is the novel osteoporosis drug, Odanacatib. The osteoporosis drug market is expected to reach $16 billion by 2015. Analysts forecasted that, if approved, peak sales of the drug could generate revenues of more than $1 billion with a very good chance of gaining FDA approval. However, excitement was lowered when the company announced earlier this year it was delaying the FDA filing from the first half of 2013 until 2014 to gather more safety and efficacy data.
Merck has a market cap of $141.6 billion. The company upped its quarterly dividend by $0.01 to $0.44 per share with a yield of 3.64, which is at the higher end compared to its competitors. The company is in the process of restructuring its R&D and downsizing -- laying off over 8,500 workers worldwide. And while some see over a 25% downside risk in the stock, Merck remains confident about the future of the company and appears to perceive the stock at a bargain price, as it earlier announced it was continuing the planned repurchase of $7.5 billion of company stock over the next 12 months. The repurchase is part of a $15 billion buy-back plan announced earlier in May.
While the company's savings and cost-cutting plan should help in the future, Merck needs to find a new blockbuster drug platform. And if MK-8931 continues to show promise, it may just be such a drug. However, Merck still has some excellent up-and-coming blockbuster contenders including two of its diabetes drugs, Januvia and Janumet, which had combined sales of $5.7 billion in 2012, and Odanacatib, if it gains regulatory approval. While I don't see Merck as a stellar performer today, if MK-8931 does buck the Alzheimer's trend and continues to deliver positive results, Merck is an excellent long-term stock to hold, with great upside.