Is This Diabetes Drug Merck's Next Blockbuster?


Diabetes is becoming a global epidemic, and big pharma is lining up for the revenues. Merck (NYS: MRK) isn't the first name that comes to mind for blockbuster diabetes drugs, but it has churned out two success stories already and is lining up a third from the same medicinal class. Will this be enough to patch up recent losses?

Merck sales took a tremendous hit this past summer when the asthma treatment Singulair fell off the patent cliff. The company's diabetes franchise of Januvia and Janumet offers some stability, with more than $1.4 billion in revenue last quarter and $4.7 billion in 2011. But those drugs have patents, too, and the clock is ticking for a new diabetes treatment.

Could the pipeline project MK-3102 fill the Singulair void and cement Merck's status in the diabetes market?

Blockbuster potential?
MK-3102, which is a DPP-4 inhibitor, is able to increase the body's insulin production by blocking an enzyme. Drugs in this class are favored for their ability to safely combine with other diabetes treatments without triggering hypoglycemia. In September, Merck published phase 2b results for MK-3102 that showed efficacy and safety nearly even with Januvia. Janumet is more effective for some patients, since it's a combination of Januvia and metformin, but MK-3102 is convenient with a once-weekly dosage.

Once-daily dosage is the standard for current oral diabetic medications, including Januvia and Janumet. Injection treatments have moved into once-weekly territory with Bristol-Myers Squibb's (NYS: BMY) Bydureon, but fellow Fool contributor Brian Orelli notes that injections won't be the main competitors for MK-3102. Most type 2 diabetes patients start out on pills, progressing to injections only if the pills alone aren't able to manage the condition.

MK-3102 will have competition if it's approved. Januvia and Janumet have been successfully holding off their DPP-4 counterparts from Bristol-Myers Squibb and AstraZeneca (NYS: AZN) . Those drugs -- Onglyza and its combination version, Kombiglyze -- only brought in $473 million last year. Takeda Pharmaceuticals has two DPP-4 drugs in late-stage development, but its lead candidate was denied by the FDA last spring. The secondary candidate is in phase 3, and its once-weekly dosage makes it a stronger competitor for Merck.

The real worry for MK-3102 is a rising new class. DPP-4 inhibitors are one of many types of treatments that act by regulating the body's insulin production in some way, making it harder to safely and successfully pair these drugs with insulin shots. But new SGLT-2 medications reroute glucose into the urine and out of the body, making it easier for the existing insulin to do its job. This new class is led by Bristol-Myers Squibb and AstraZeneca, with a lead drug already approved in Europe but hung up in the domestic regulatory process.

Ultimately, the pursuit of MK-3102 is an interesting choice for a next move in the diabetes realm. Merck, a well-respected Dow component, is facing down competition with a near-repeat of a previous drug. The company is likely pursuing this path to avoid a Januvia patent cliff drop the size of Singulair's. The patent expiration won't come until 2017, but MK-3102 still has a long journey ahead. Phase 3 trials can take three years to complete. The results of that trial will be passed to the FDA to begin the lengthy approval process.

Foolish bottom line
It could be a few years before MK-3102 hits the market, and approval isn't guaranteed. The FDA has cracked down on diabetes drug approvals since Avandia was linked to heart attack risks in 2008. Merck's documentation for the NDA must include evidence of cardiovascular safety.

Merck investors should keep their short-term focus on Januvia and Janumet revenues. The dynamic duo have displayed explosive year-over-year growth in recent quarters, but that pattern could waver in the near future. The pack of SGLT2 drugs are rising toward market, and may prove popular enough to erode the position of DPP-4 inhibitors.

For nearly 100 years, Merck's cutting-edge research has led to a number of medical breakthroughs. Today, however, this pharma stalwart is staring down a steep patent cliff and facing generic competition for its top-selling drug. Will Merck crumble under its own weight, or will it continue to pay dividends to investors for another century? To find out if this pharma giant has the stamina to keep its Bunsen burners alight, grab your copy of our brand new premium research report today. Our senior biotech analyst Brian Orelli, Ph.D., walks you through both the opportunities and threats facing Merck, and the report comes with a full 12 months of updates. Claim your copy now by clicking here.

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Fool contributor Brandy Betz has no positions in the stocks mentioned above. The Motley Fool owns shares of AstraZeneca plc (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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