Merck hopes Alzheimer's drug fares better

Because competitors' drugs failed, expectations are low for the pharmaceutical's BACE inhibitor, which may help the stock.

By TheStreet Staff Sep 5, 2013 12:12PM

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Medical doctor (© Creatas/SuperStock)By David Sobek

Alzheimer's patients are in dire need of effective therapies that can slow or even reverse the memory loss and cognitive decline that are the devastating hallmarks of the disease. Unfortunately, recent efforts at developing new drugs have come up short.

Next up will be Merck (MRK), which is expected to release the results of a phase II drug trial on its BACE inhibitor by the end of this year. The results follow up on phase Ib data that demonstrated an anti-amyloid effect -- although the trial was conducted in healthy patients and not in Alzheimer's patients.

Of course, investors' expectations for Merck's BACE inhibitor are quite low because of the failure of a similar drug developed by Eli Lilly (LLY). In some way, this creates an asymmetric opportunity in that failure (the expected outcome) should have a limited effect on Merck's stock price, whereas success would have an outsized, upside effect. Incyte (INCY) added more than $1 billion to its market value last month after announcing some positive pancreatic cancer data, which illustrates what can happen when a low-expectation clinical trial produces a modicum of success. Merck will not move to the same degree given its current market cap, but you get the idea.

In general, BACE inhibitors have low expectations because they are part of the larger beta-amyloid hypothesis that has both dominated the field of Alzheimer's research despite continued failure in the clinic. This past year, Pfizer (PFE) and Johnson & Johnson (JNJ) reported a failed phase III trial of their beta amyloid targeting drug bapineuzumab. In addition, Eli Lilly reported what was essentially a failed phase III trial of solanezumab, even though the company decided data were good enough to try again with another trial. Why would these failures have less read through to Merck's BACE drug?

Bapineuzumab and solanezumab are both monoclonal antibodies meant to clear beta-amyloid plaques from the brain. These plaques are thought to be more a cause of Alzheimer's as opposed to another symptom. But despite successfully clearing beta-amyloid plaque, neither drug was able to improve cognition or prevent memory loss.

BACE inhibitors work differently by seeking to prevent beta-amyloid plaques from forming. It's a reasonable approach but one which may generate unwanted side effects. Some preclinical work suggests BACE inhibitors might interfere with the formation of myelin, the insulating material around nerves. Lilly halted development of BACE inhibitor trials due to liver toxicity. Whether or not liver toxicity is specific to the Lilly drug or may be a class effect that could also strike Merck's BACE inhibitor isn't known.

It's difficult to predict a successful outcome for Merck's BACE inhibitor study. The odds are stacked against the drug, as they are for all Alzheimer's drugs in development to date. But working in Merck's favor are low expectation and the potential for mega-blockbuster sales if the drug is ever approved. This is just phase II study so a signal of activity, and not complete proof of efficacy, might be enough at this point to move Merck's stock higher.

Sobek has no positions in stocks mentioned in this article.

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