Just last week, two major pharmaceutical companies announced that they are working together to combat Alzheimer’s disease – and that’s great news.
Alzheimer’s will end up affecting one out of eight people reading this.
More than 5.3 million Americans suffer from the debilitating brain disease right now. And with the aging of the nation’s baby boomers, the number of Alzheimer’s cases is set to quadruple.
So far, researchers have found no pharmaceuticals that substantially cure, treat or even slow the disease down.
But another biotech company is supercharging a race for the cure – and its drug is in late-stage Phase 3 trials.
In other words, there is a way to both fight Alzheimer’s and supercharge your portfolio – today…
A Long Race
As investors, it’s important for us that a lot of money is up for grabs.
And it is.
According to AstraZeneca and Lilly, the experimental drug they are working on could be worth $5 billion in annual sales.
That would put it in line with bestselling drugs like Crestor and Cymbalta. The current total market for Alzheimer’s drugs is estimated at $10 billion.
However, the firms acknowledge the technology they are exploring – a so-called “BACE inhibitor” – has a just a 9% chance of success.
So, today I’d like to tell you about another major pharmaceutical firm that is exploring similar pharmacology but is much further along in the approval process – and so, gives access to the fastest gains for investors.
When it comes to Alzheimer’s research, I have a rare front-row seat into what’s developing in this exciting but challenging field.
My cousin by marriage is researching the disease as part of his role at Stanford University School of Medicine. Dr. Geoffrey Kerchner is a neurologist and director of research at the Stanford Center for Memory Disorders.
In his research, Geoffrey uses advanced, high-resolution magnetic resonance imaging (MRI) to discover the earliest signs of Alzheimer’s and other brain illnesses. The goal is to detect these diseases before patients exhibit or suffer symptoms.
Geoffrey has emphasized to me several times that the early detection of neurological disorders gives patients much better treatment options.
Though there is no known cure, doctors have some tools at their disposal that can help patients cope with Alzheimer’s, including four drugs. Unfortunately, their impact is limited.
Here’s what they’re up against. Alzheimer’s causes problems with memory, thinking and behavior. Symptoms develop slowly and get worse over time.
And eventually, as we all know, Alzheimer’s patients can barely function, communicate or recognize their loved ones.
This is a disease of extreme interest to America’s 76 million baby boomers, who are rapidly becoming older adults. That’s because most Alzheimer’s patients are 65 or older.
In addition to the more than 5 million U.S. Alzheimer’s patients, at least another 40 million people worldwide have the disease. Experts expect that number to triple by 2050, when it will affect 20% of the U.S. population.
There’s a disconnect between the swelling number of patients and the market for Alzheimer’s drugs, however.
Analysts at BCC Research estimate the Alzheimer’s drug market reached $10.2 billion in 2012.
But BCC is projecting Alzheimer’s drug sales will decline by 1.5% a year going forward, falling to $9.5 billion in 2017.
This finding comes after a couple of big setbacks for Alzheimer’s drugs.
Two years ago, Pfizer Inc. (NYSE: PFE) and Johnson & Johnson (NYSE: JNJ) pulled the plug on their joint development of an Alzheimer’s therapy. The results of two late-stage clinical trials showed the compound had no benefit to patients.
That failure puts in stark perspective the potential risks biotech companies undertake when they develop new drugs. According to data compiled by the Tufts Center for the Study of Drug Development, on average it takes 7.5 years and $802 million to bring a new drug to market.
AstraZeneca and Lilly may say their Alzheimer’s treatment will be worth $5 billion in annual sales. But it may take seven years or more for them to get there.
From Setbacks to Steppingstones
AstraZeneca is developing the drug, and Lilly will pay up to $500 million if the treatment makes it through clinical trials and gets approval from the U.S. Food and Drug Administration. The two will share development and commercialization costs and any future revenue the drug generates.
They are working on a BACE inhibitor because such compounds stop the body from developing protein fragments called beta amyloid. Brain scans like the ones my cousin takes show that Alzheimer’s patients have clumps of these protein fragments in their brains.
With BACE inhibitors, doctors hope to stop or significantly reduce the beta amyloid buildup in the first place. Though it’s not a cure, this approach could give Alzheimer’s patients several years of healthy living.
Let me be clear about one thing. AstraZeneca and Lilly are both excellent companies. Each has high operating margins and a deep pipeline of quality drugs used to combat a wide range of conditions, from cancer and heart disease to infections and diabetes.
As much as I respect these two global biotech leaders, there is a more solid way to invest in the enormous potential that Alzheimer’s treatments present to your portfolio.
A BACE inhibitor from Merck & Co. Inc. (NYSE: MRK), known as MK-8931, is much further along in the FDA approval process than AstraZeneca and Lilly’s medicine.
When Merck reported the positive results of earlier trials back in 2012, Darryle Schoepp, Merck’s head of neuroscience, had this to say about MK-8931’s effectiveness.
“Our drug attacks the amyloid pathway directly,” Schoepp said. “We’re preventing it at the beginning. It’s like shutting the faucet so nothing comes out.”
Merck’s Alzheimer’s compound has already entered Phase 3 clinical research, a crucial late-stage step before getting FDA’s final stamp.
In December, Merck said it was proceeding into Phase 3 advanced trials after getting positive results from a study involving 200 patients who took MK-8931 for three months and receiving the green light from the FDA.
After so many Alzheimer’s drug failures over the last several years, this is a highly promising development.
The New Jersey-based company is now further working with patients who show early signs of Alzheimer’s.
The Quickest Way to Big Gains
While it’s almost impossible to guess at how long Phase 3 could take, three years is a good estimate. That means we could see MK-8931 on the market by the end of 2017.
That may sound like a long time, but it still gives us at least a four-year head start on AstraZeneca-Lilly.
And once the FDA approves Merck’s drug, I think the stock could get a two-year pop of 50%.
I base that projection on what we’ve seen happen with Gilead Sciences Inc. (NasdaqGS: GILD).
That company, which I recommended to you in June, began marketing Sovaldi, a new hepatitis C drug, in December. Sovaldi made $5.8 billion in sales in the first six months of the year.
And its stock is up 40% since the start of the year.
To be conservative, let’s cut MK-8931 sales to $2.5 billion a year, even though we know it could easily be double that. That gives us roughly 25% a year in gains in the two years after the drug receives approval.
Of course, there’s much more to Merck’s operations than this potential blockbuster breakthrough. This is an extremely well-run global giant with dozens of products already on the market and a deep pipeline of drugs under development.
Besides MK-8931, it has 12 drugs in advanced trials and 10 more in Phase 3, including another treatment for Alzheimer’s.
Merck has a market cap of $174 billion and trades at $60 a share. It has a return on equity of 11% and 22% operating margins. In its most recent quarter, Merck reported a stunning 126% increase in earnings per share to 68 cents.
Based on these numbers, and not counting Merck’s 3% dividend, I think we could see it share price rise a respectable 12% to 15% over the next year.
But remember, we’re homing in on MK-8931, which puts on the fastest track to a truly effective Alzheimer’s treatment – and 50% gains soon after approval.
That makes Merck a unique foundational play. The stock offers investors the stability that comes with a global big cap that has lots of revenue streams, strong earnings and a rock-solid dividend.
At the same time, Merck set up to soar once it gets the green light to start helping millions cope with a disease the world fears.
- Strategic Tech Investor: Is This Drug the Key to an Alzheimer’s Cure?
- Strategic Tech Investor: Not Even D.C. Meddling Could Stop Biotech’s Biggest Comeback.