Merck & Co. Inc. (MRK) recently entered into agreements with Roche Holdings Ltd. (RHHBY) to bring about an improvement in the treatment, diagnosis and awareness of chronic hepatitis C (HCV) infection in developed and emerging markets.

Merck and Roche will also collaborate and study novel combinations of marketed and investigational drugs of both companies leading to an increase in the availability of potential new treatment regimens for patients suffering from HCV.

Per the terms of the non-exclusive agreements, Roche will promote Victrelis (boceprevir) in the US as a part of a triple combination therapy regimen. The companies plan to extend the agreement to other developed and emerging markets.

We note that the US Food and Drug Administration (FDA) approved Victrelis last week for the treatment of chronic hepatitis C infection. The drug is to be used in combination with peginterferon alfa and ribavirin, in treatment-naïve and treatment-failed patients (18 years and older), with compensated liver disease, including cirrhosis.

We expect competition in the HCV market to heat up later this month with the potential FDA approval of Vertex Pharmaceutical Inc.’s (VRTX) HCV candidate Incivek (telaprevir). Incivek, which received a positive recommendation from an advisory panel of the FDA in April, is likely to gain US approval by May 23, 2011.

Neutral on Merck

We currently have a Neutral recommendation on Merck, which is supported by a Zacks #3 Rank (short-term Hold rating). We view Merck’s deal with Roche for the marketing of Victrelis as a positive. The companies’ intention to bring new potential HCV treatments to market will lead to additional revenues as the HCV market offers substantial commercial potential.

According to the World Health Organization (WHO), HCV infection is responsible for more than 50% of all liver cancer cases and two-thirds of all liver transplants in the developed world. The WHO estimates that about 170 million people are chronically infected with HCV worldwide with an additional 3 to 4 million people being infected each year. According to the US Centers for Disease Control and Prevention, about 3.2 million people in the US are chronically infected with HCV.

 
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