Merck (MRK) recently received a boost in the form of US Food and Drug Administration (FDA) approval for its chronic hepatitis C virus (HCV) drug, Victrelis (boceprevir). The FDA approved Victrelis for use in both treatment-naïve and treatment-failed adults who still have some liver function. Victrelis is to be used in combination with peginterferon alfa and ribavirin, the current standard of therapy.

Victrelis belongs to a new class of medicines called protease inhibitors. The drug’s approval was based on data from two phase III studies which showed that two-thirds of patients being treated with Victrelis+ peginterferon alfa and ribavirin experienced a significant increase in sustained virologic response compared to the standard therapy of peginterferon alfa and ribavirin. This means that the hepatitis C virus was no longer detected in the blood 24 weeks after treatment was stopped.

The achievement of sustained virologic response could result in decreased cirrhosis and complications of liver disease, lower rates of liver cancer and lower mortality.

Huge Potential in HCV Market…

The HCV market could represent huge 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 million 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.

Merck will start shipping Victrelis within a week at a wholesale acquisition cost of $1,100 per week. Victrelis is to be taken thrice a day with food.

…But Competition not far Behind

We expect competition in the HCV market to heat up later this month with the potential FDA approval of Vertex Pharmaceutical’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 carries a Zacks #3 Rank (short-term “Hold” rating). Victrelis’ approval is a positive for Merck. Following the release of first quarter results, Merck’s earnings estimates for 2011 have been on the rise. Cost control efforts and share buybacks should help Merck achieve its 2011 guidance.

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