Merck's Jumpin' Januvia

Japan and Januvia. No, it's not a country—not even a fictional one—even though it sounds like "Genovia" in "The Princess Diaries." It's a diabetes drug from Merck. And today it won a competitive reprieve from Japan's Takeda Pharmaceuticals.

In Friday morning trading, shares of Dow component MRK seem to be getting a lift from the news. Januvia is an important new product for Merck. Last year, the company sold $1.75 billion worth of Januvia and a similar combo pill, Janumet. This year it expects that number to go up at least a billion bucks and to maybe nearly double.

That's fast growth.

There are several companies including Takeda, Roche, GlaxoSmithKline, and Bristol-Myers Squibb that are working on drugs that are in the same category as Januvia. Takeda announced today that the Food and Drug Administration wants more data on whether there are any heart side effects with its drug. That's because the agency recently adopted stricter standards for diabetes drug approvals in the wake of the cardiovascular risks identified in a controversial study of Glaxo's Avandia. But—and this is a big but—analysts thought the new rules would only apply to drugs that hadn't come before the FDA yet and not to products, like Takeda's, that were already in front of the agency.

David Kliff who writes "The Diabetic Investor" newsletter says, "This is very, very bad news for anyone who has a diabetes drug under development. This has opened a Pandora's Box. They changed the rules in the middle of the game." That's why you're seeing shares of Novo Nordisk take a hit today. NVO has a different type of new diabetes drug set to go before an FDA Advisory Committee early next month. So, investors think this could possibly delay that product coming to market. Kliff also believes the Takeda thing could have an impact on the approval timeline for a once-a-week version of Byetta from Amylin Pharmaceuticals, Eli Lilly and Alkermes. They're expected to file for the FDA okay of that drug in the near future.


The upside for Merck is that this means it may maintain the corner on the new diabetes pill market for a longer than expected period of time. JPMorgan pharma analyst Chris Schott writes in a research note to clients this morning, "We expect Januvia franchise sales of $2.6 billion in 2009, increasing to $4.4 billion in 2013. We could see upside to these numbers with a significant (Takeda) delay." JPM has done investment banking for MRK and wants to do some more.

The FDA is super safety-conscious these days. The question is whether the new FDA commissioner—whoever it might be—is going to stay that course, get even more strict about it or loosen the reins a bit. The industry waits for the President and the HHS Secretary—presumably Kathleen Sebelius, if/when she's confirmed—to open the envelope and announce the winner.

Questions? Comments?