Merck diabetes treatment awaits fate

NEW YORK (CNNMoney.com) -- Government regulators are expected to decide by Friday whether to approve a new diabetes treatment from Merck that could add hundreds of millions of dollars in annual sales to its Januvia medication.

Merck (up $0.70 to $43.93, Charts) has said the Food and Drug Administration was expected to complete its review of the experimental combination drug Janumet by the end of March. Janumet is a pill that would combine the diabetes drug Januvia with the generic drug metformin.

Januvia and metformin help diabetics with type 2, or the most common type of diabetes, lower their blood-sugar levels.

Januvia, approved by the FDA in October, is considered a potential blockbuster by many analysts, in a lucrative U.S. diabetes market estimated at $20 billion.

John Boris, analyst for Bear Stearns & Co., expects that annual sales for Merck's Januvia franchise will reach $2 billion by 2010, and that Janumet will account for up to about 35 percent of those sales. Boris wrote, in a note to investors, that he expects the FDA to approve Janumet this week and to launch the combination in early April.

Michael Krensavage, a Raymond James analyst who rates Merck a "strong buy," wrote in a note that the Januvia franchise and recently launched products such as the cervical cancer vaccine Gardasil will help the company deal with the 2008 patent loss of the osteoporosis blockbuster Fosamax - with more than $3 billion in annual sales - and the sales vacuum from expired blockbusters.

Analysts and investors are very focused on Big Pharma's pipelines, considering that $16 billion worth of name-brand drugs are expected to lose patent protection this year, following $23 billion in patent expirations in 2006, according to IMS Health, a medical research firm.

Like other members of Big Pharma, Merck is scrambling to fill its pipeline to replace outgoing blockbusters. The company's patent on Zocor, the anti-cholesterol drug worth $4.4 billion in annual sales, expired last June.

The company had to pull its anti-arthritis painkiller Vioxx, worth $2.5 billion a year, off the market in 2004 after a test attributed the drug to a heightened risk of heart attacks and strokes. Merck faces more than 20,000 lawsuit cases from former Vioxx patients and their families. So far, Merck has won 10 Vioxx cases in court and lost five.

Merck got some good Januvia-related news in February, when its chief potential competitor in the diabetes industry, Novartis (up $0.52 to $56.79, Charts), hit a snag in trying to get its experimental drug Galvus approved. The FDA requested additional data from Novartis, delaying the market entry of its potential blockbuster.

Barbara Ryan, analyst for Deutsche Bank North America, projects nearly $2 billion in annual Januvia sales by 2010 and expects Galvus to be delayed by 18 months. Ryan said "this clearly helps Januvia, as it will likely not face competition from another DDP-IV [drug of that class] until 2008."

Merck is the No. 4 drugmaker in America in terms of sales, behind Pfizer (up $0.18 to $25.36, Charts), Johnson & Johnson (up $0.32 to $60.32, Charts) and Abbott Laboratories (down $0.02 to $55.74, Charts).

The analysts quoted in this story do not own shares of Merck stock, but Bear, Stearns and Deutsche Bank seek business with the company and Raymond James had conducted investment banking services for Merck.