Merck ( MRK - Analyst Report ) is collaborating with GE Healthcare for the use of an investigational positron emission tomography (PET) imaging agent [18F (flutemetamol)] in the development of Merck’s Alzheimer’s disease candidate, MK-8931.

Merck and GE Healthcare are looking to use [18F] flutemetamol to measure beta amyloid deposits in the brain – this would assist in determining the stage of Alzheimer’s disease and disease progression. GE Healthcare will provide [18F] flutemetamol under the collaboration, license and supply agreement. Merck intends to use [18F] flutemetamol as a companion diagnostic tool that will help identify patients for studies that will be conducted with MK-8931.

Merck recently moved MK-8931 into a phase II/III study (EPOCH). The study is evaluating the safety and efficacy of MK-8931, an oral β-amyloid precursor protein site-cleaving enzyme (BACE) inhibitor, in mild-to-moderate Alzheimer's disease patients.

Three oral doses of MK-8931 will be compared to placebo in the 78-week, randomized, placebo-controlled, parallel-group, double-blind study. The safety profile of the candidate will be evaluated in 200 patients before phase III studies are initiated.

We view MK-8931 as a high risk-high return candidate for Merck. The successful development of therapies for the treatment of Alzheimer’s disease is challenging and we note that several companies have failed in developing treatments for the same.

Companies like Eli Lilly ( LLY - Analyst Report ) , Pfizer ( PFE - Analyst Report ) and Johnson & Johnson ( JNJ - Analyst Report ) have all faced setbacks in their efforts to develop a treatment for Alzheimer’s disease.

The Alzheimer’s disease market, however, represents huge commercial potential and therefore attracts a lot of interest. A successfully developed product could generate billions of dollars in sales once launched. As per data provided by the Alzheimer's Association, approximately 5.4 million people have Alzheimer’s disease in the US alone.

Neutral on Merck

We currently have a Neutral recommendation on Merck, which carries a Zacks #3 Rank (Hold). While headwinds remain in the form of the Singulair genericization, EU pricing pressure, unfavorable currency movement, US health care reform, the Remicade/Simponi transition and pipeline setbacks, some of the company’s recent launches should start contributing significantly to the top line in the forthcoming quarters.

Pharma stocks currently holding a Zacks #2 Rank (Buy) include companies like Novo Nordisk ( NVO - Analyst Report ) and Johnson & Johnson.