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Merck & Co. Inc. (MRK - Analyst Report) recently joined forces with Bristol-Myers Squibb (BMY) to conduct a phase II study with their hepatitis C virus (HCV) candidates. The study will evaluate the safety and efficacy of a once-daily oral combination of MK-5172 and daclatasvir for the treatment of chronic HCV.

The Candidates

Merck’s MK-5172 is an oral HCV NS3/4A protease inhibitor, which is being evaluated in combination with other approved and investigational medications in phase II studies.

Bristol-Myers’ daclatasvir (phase III) is an NS5A inhibitor, under evaluation for the treatment of direct-acting antiviral (DAA) based hepatitis C.

Terms of the Deal

Under this non-exclusive agreement, Merck will conduct the phase II study. Additional development activities beyond phase II are not covered in this agreement.

Our Take

We are positive on this deal which reflects the commitment of both companies towards developing new therapies for HCV. The HCV market represents immense commercial potential with more than 170 million HCV patients across the world. Currently, many large cap companies are developing drugs for the treatment of HCV.

The launch of Merck’s Victrelis and Vertex Pharmaceuticals Inc.’s (VRTX - Snapshot Report) Incivek changed the treatment paradigm of the HCV market. Victrelis, approved in 69 countries, posted worldwide sales of $502 million in 2012. Incivek posted sales of $1.16 billion in 2012.The development of an all-oral treatment regimen would be a major change in the HCV treatment paradigm.

Merck carries a Zacks Rank #3 (Hold). Currently, companies like Vertex Pharma, Cleveland BioLabs, Inc. (CBLI - Snapshot Report) and Transcept Pharmaceuticals, Inc. look more attractive. All three stocks carry a ZacksRank #1 (Strong Buy).

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