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Avandia Mania

As Congress, the FDA and the drugmakers wrestle with what appear to be impending warnings about the safety of Avandia, investors are wrestling with estimates of the collateral damage to this multi-billion dollar GlaxoSmithKline franchise. Some say it's the next Vioxx and that investors have priced into the stock a high likelihood that GSK will eventually pull the drug from the market. Others compare it to what happened with Pfizer's painkiller Celebrex in the wake of the Vioxx withdrawal. Sales of Celebrex, which is still on the market, fell off a cliff, but have since regained much of the lost ground.

The FDA revealed yesterday that the safety of Avandia and a similar drug Actos from Japan's Takeda Pharmaceuticals (Eli Lilly gets a small and dwindling royalty from Actos sales) will be addressed at an Advisory Committee meeting on July 30th. Some analysts think the panel will probably recommend the agency put a black-box or severe safety warning on the label of one or both drugs regarding the potential heart risk. The FDA Commissioner also said yesterday he's asked the companies to put a warning on the labels about the increased risk of congestive heart failure. That risk is not new, however.

Anyway, today Deutsche Bank's big pharma analyst Barbara Ryan held a conference call for clients to assess the winners and losers. I was invited to listen in. Many patients are switching off of Avandia and onto Actos, Merck'sJanuvia/Janumet or Amylin Pharmaceuticals' Byetta. Ryan started out by estimating that every $400 million increase in Januvia/Janumet sales translates into an additional 12 cents earnings per share for MRK.

By comparison, because LLY has such a small interest left in Actos, Ryan believes every extra $400 million in Actos sales only means one more cent for LLY's eps. But LLY partners with AMLN on Byetta. And Ryan estimates if current prescription trends hold up that could add as much as 4 cents to LLY's eps. Still, "Much more of the leverage is with Merck," she said. Ryan bases her estimates, in part, using prescription numbers gathered by ImpactRX which is a company that monitors that stuff. She said, "Actos is clearly the big gainer." But, she adds that Byetta is benefitting from switches being prescribed primarily by endocrinologists and not by primary care physicians.

For anecdotal color Ryan had a prominent endocrinologist (diabetes specialist) and internist join in on the call: Dr. Robert Ruxin (endo) and Dr. Scott Andes (internist). Both doctors expressed confidence in Avandia's safety and efficacy, but said they've been forced to respond to patient concerns fueled by media coverage. While both of their offices have received phone calls from patients neither of them characterized it as a "groundswell" of concern. They said they were able to convince some patients who were having success with Avandia to stay on it.

But for those patients who insisted on being taken off the drug, the doctors said they were okay with that since there are good alternatives on the market. Dr. Ruxin said, "I think our arms got twisted by patients asking to be switched." Both of them also agreed with what Glaxo CEO JP Garnier told me yesterday in his first TV interview since the Avandia story broke--that the news media are blowing the story out of proportion. "The risk is tiny. The risk of driving a car exceeds any possible risk that may even be true in these studies," one of them said. "People smoke and drink and eat McDonald's. It doesn't make much sense how they can single out a drug."

For the time being, though, both doctors said they're not writing any Avandia prescriptions for patients who aren't on it already. That anecdotal information is reflected in recent industry-monitoring reports of new Avandia prescriptions. Dr. Andes says over the years he's given talks for a small fee for Merck and Glaxo. Dr. Ruxin is or has been part of the speakers bureau for Glaxo, Takeda and Lilly.

Deutsche Bank owns at least one percent of MRK, AMLN, LLY and GSK and has done and wants to do more investment banking for Lilly and Glaxo.

Questions? Comments? Pharma@cnbc.com