Merck Stock Depends on Januvia More Than Ever

Merck Stock Depends on Januvia More Than Ever

Merck stock has become dependent on its diabetes drug Januvia over the past couple of years for revenue growth. The franchise made up 12% of Merck's sales in the first quarter and probably a larger percentage of its bottom line.

Three for one
Januvia comes in three versions. The base drug is called Januvia, but it's also available as a fixed-dose combination with a couple of generic drugs used by diabetics. Janumet contains Januvia and merformin. Juvisync combines Jaunvia with simvastin.

Sales of Jaumet were about half that of Januvia, which given the size of Junuvia is still a substantial boost to revenue. Janumet, by itself, is on pace to rack up $1.6 billion in sales this year.

Juvisync, which was approved in 2011, doesn't appear to be nearly as popular. Merck doesn't even bother to break out sales. The difference lies in the fact that simvastin isn't actually a diabetes drug; it's Merck's cholesterol-lowering drug Zocor, which went off patent awhile ago. While it's not hard to see why doctors would want to treat high cholesterol in diabetics when it's present, not all diabetics have high cholesterol.

Januvia faces direct competition from Bristol-Myers Squibb and AstraZeneca's Onglyza, which is in the same DPP-4 class of drugs. Onglyza got off to a slow start, but the companies didn't give up pushing into Merck's stronghold on the oral diabetes market. The effort seems to be paying off. First-quarter sales of Onglyza were up 17% in the U.S., thanks to 8% higher prescriptions and a price boost. Worldwide sales of the drug, which goes by Kombiglyze elsewhere, were up 25% as the drug launched in new regions.

In addition to direct competition from DPP-4 drugs, Januvia faces competition from other drugs. Takeda's Actos is available as a generic, and while it is arguably an inferior drug in terms of risk/benefit, the lower copay for generics can be a big driver of prescriptions.

Johnson & Johnson recently introduced a diabetes drug with a new mechanism of action called Invokana. In the short term, the new pathway will give doctors pause, and the drug will probably be prescribed when Januvia and other oral diabetes drugs stop working. But as doctors start to get more comfortable with Invokana, it certainly has the potential to take market share away from Januvia.

Side effects
What's helped Januvia grow in to a megablockbuster is the relatively mild side effects the drug produces. Doctors hate prescribing a drug to a patient and then having to deal with calls or returns to the office with complaints about side effects.

Given the relatively clean side-effect profile, recent reports that Januvia might be causing pancreatitis and potentially pancreatic cancer are troubling. If the preliminary findings pan out, the side effects could put pressure on sales.

Why Januvia is so important to Merck stock
Jaunivia is now Merck's top-selling drug after the former top-selling drug, Singulair, recently went off patent protection. In the first quarter, the drop in Singulair sales produced a $1 billion hole that had to be filled. The easiest way to fill that hole is through growth of the top-selling drug. Given the challenges outlined here, I'm not sure Januvia is up for the challenge.

Without revenue growth, you can't expect Merck stock to move higher.

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