Novartis diabetes drug may not crack U.S.

NEW YORK (CNNMoney.com) -- Novartis' troubled diabetes drug Galvus, which has been approved by European regulators, might never make it to the U.S. market, an analyst said Tuesday.

A spokesman for the Swiss drug giant disputed the comments as "pure speculation."

The failure of Novartis to crack into the U.S. market with Galvus would be a boost for Merck & Co. Inc., which could gain as much as $300 million to $400 million in annual sales for its rival diabetes drug Januvia, said Chris Schott, analyst for Bank of America.

Both drugs lower blood-sugar levels in people with type 2 diabetes, the most common form of the disease suffered by more than 20 million Americans.

Galvus was approved in Europe for use once or twice a day at 50 mg's per dose, or once day at 100 mg. But on Nov. 6, after test results showing elevated liver enzymes in some patients who took the 100 mg pill, the company said it plans to drop the larger dose before it starts selling the drug in Europe.

"This move gives Januvia (once-daily) another clear advantage over its nearest competition in the EU markets," said Schott of Bank of America, in a published note. "Of equal importance, following a meeting with Novartis management, we now believe U.S. development for Galvus could be discontinued if U.S. regulators require further liver studies on the drug. We would not be surprised to see this request from a conservative FDA."

Novartis spokesman John Gilardi disputed the analyst's comments.

"This is pure speculation," said Gilardi. "Discussions are continuing with the FDA in taking the steps necessary to gain approval for this drug."

This is only the latest pitfall for Galvus. In February, the Food and Drug Administration issued Novartis an "approvable letter" - a request for additional studies - before the drug would be allowed on pharmacy shelves.

Meanwhile, Merck has won approval for its Januvia in more than 30 countries, including the U.S. in October 2006. Sales exceeded $400 million during the first nine months of 2007.

Merck (Charts, Fortune 500) is making a come-back this year. Its stock is up 28 percent year-to-date. Merck shares were hammered following its 2004 withdrawal of the arthritis painkiller Vioxx, which invited tens of thousands lawsuit cases. Merck announced a $4.85 billion settlement on Nov. 9, which was a fraction of what many analysts had projected, sending up the stock 2 percent on a down day for the markets.

Shares of Novartis (Charts) have plunged 10 percent so far this year.

While Schott, the Bank of America analyst, said Novartis would lose $300 million in U.S. sales if it can't get Galvus approved by the FDA, he projected strong growth for the company going forward. Novartis is one of the more diverse pharma companies and produces name-brand drugs, generics, vaccines, consumer products and diagnostics. It also has a strong pipeline of drugs in development and is not threatened by the looming expirations of key drug patents.

"Novartis couples a healthy base business with limited near-term patent exposure and an attractive late-stage pipeline," Schott wrote.

Schott does not own stock in the companies mentioned here, but Bank of America has lead or co-managed an offering of securities for Merck in the last 12 months.