Novartis' pain is Merck's gain

FDA's request for additional study from Novartis delays market entry of potential diabetes blockbuster Galvus.

By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Merck is the victor, at least for now, in an ongoing diabetes blockbuster showdown with Novartis.

Merck's (up $1.77 to $44.71, Charts) newly-approved diabetes drug Januvia probably won't face serious competition for at least a year, thanks to an FDA-imposed delay on Novartis' (down $1.64 to $57.01, Charts) experimental drug Galvus.

The Swiss drug giant Novartis said on Monday that the Food and Drug Administration issued the company an "approvable" letter, a request for more data before Galvus can be approved for the U.S. market. The FDA wants Novartis to conduct a safety and efficacy study on patients with kidney problems.

Analysts consider both Januvia and Galvus potential blockbusters, with annual sales eventually peaking between $1 billion and $2 billion. The drugs have similar profiles: once-a-day pills that lower blood-sugar levels in type 2 diabetes, the most common type of the disease affecting more than 20 million Americans.

Merck, based in the Whitehouse Station, N.J., was first to the market with Januvia in 2006, which means that the drug faces no serious competition until the FDA approves Galvus. (Bristol-Myers Squibb (up $0.23 to $27.28, Charts) is developing a similar drug, saxagliptin, but it's not as advanced in the regulatory process as Galvus.)

This comes as welcome news to Merck, which has been working to rebuild its pipeline after the 2006 patent expiration of the anti-cholesterol blockbuster Zocor and the 2004 market withdrawal of the arthritis painkiller Vioxx, which resulted in more than 20,000 lawsuits blaming the drug for causing heart attacks and strokes.

The FDA faced a firestorm of criticism for approving Vioxx without requiring more rigorous safety studies. Les Funtleyder, analyst for Miller Tabak, said the Vioxx situation that caused Merck so much pain might have benefited the company this time around. The FDA is being hyper-cautious with Galvus, fearing a Vioxx-like safety situation, but this time involving kidneys instead of hearts, said Funtleyder.

"I'm not sure that this is all Novartis' fault," said Funtleyder. "I think it has more to do with a cautious FDA. In other times, I don't think the FDA would have taken this step. This is a product of the post-Vioxx era, for better or for worse. In the end, it's a negative for Novartis and a positive for Merck."

Merck is the fourth-largest U.S. drug company in terms of sales, behind Pfizer (up $0.26 to $25.88, Charts), Johnson & Johnson (up $0.09 to $64.24, Charts) and Abbott Laboratories (up $1.00 to $54.59, Charts).

Funtleyder does not own shares of stock in the companies mentioned here and Miller Tabak does not conduct business with them.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.