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Merck (MRK - Analyst Report) recently entered into an agreement with Luminex Corporation (LMNX - Analyst Report) for the development of a companion diagnostic device that will be used to screen patients for studies being conducted by Merck on its Alzheimer’s disease candidate, MK-8931.

Under the terms of the collaboration and license agreement, Luminex will be responsible for the development, regulatory submission and commercialization of the companion diagnostic device. Luminex’ xMAP Technology will be used for the development of the device that will measure two candidate biomarkers (Aβ42 and t-tau) in cerebrospinal fluid samples from patients with mild cognitive impairment (MCI). The companion diagnostic device could help identify patients who are at higher risk of developing Alzheimer’s disease.

Merck’s Alzheimer’s disease candidate, MK-8931, is currently in a phase II/III study (EPOCH). The study is being conducted to evaluate 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 including Medivation (MDVN - Analyst Report) have failed in developing treatments for the same.

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 5.2 million people have Alzheimer’s disease in the US alone.

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

Large-cap pharma stocks currently holding a Zacks Rank #2 (Buy) include companies like Novo Nordisk (NVO - Analyst Report).

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