Merck Boosts Forecast, Aided by New-Drug Sales

Delay at Rival Novartis May Provide a Lift For Diabetes Treatment

By SARAH RUBENSTEIN
March 1, 2007; Page C10

Encouraged by strong sales of new drugs, as well as a recent blow to a potential competitor, Merck & Co. raised its earnings guidance for 2007.

The announcement followed a second regulatory snag for a competing diabetes medicine, Galvus, from Switzerland's Novartis AG that could delay that drug's entry by a year or longer. Merck's drug, Januvia, came to market last October after Merck sped up development of the drug.

Merck attributed the increase in its earnings expectations to positive results among a range of products -- not just Januvia. In its fourth-quarter earnings announcement in January, Merck touted sales of allergy drug Singulair, two cholesterol drugs it co-markets with Schering-Plough Corp., Vytorin and Zetia, as well as Gardasil, the company's new vaccine for the virus that can cause cervical cancer.

"It being the end of February, we clearly were seeing positive early revenue trends across many products in our portfolio," said spokeswoman Amy Rose. Some analysts were already ahead of Merck's own forecasts.

Analysts see Novartis's delay as a boon for Merck, at least in the short term. Lehman Brothers analyst Anthony Butler increased his estimate for world-wide sales of Januvia to $488 million for 2007, from a prior estimate of $353 million. For 2008, Mr. Butler now expects Januvia's world-wide sales to be $1.17 billion, up from his prior estimate of $887 million.

Merck said it expects to earn $2.40 a share to $2.55 a share, up from the company's prior 2007 estimate of $2.36 to $2.49 a share. Shares of Merck rose 2.3% to $44.15 in 4 p.m. New York Stock Exchange composite trading.

Merck and Novartis had been in a close race to bring their drugs to market first. The drugs are part of a new class for Type 2 diabetes called DPP-4 inhibitors. But the Food and Drug Administration has twice held off approving Galvus over concerns about skin lesions identified in monkeys.

Analysts estimate Galvus could be delayed for about a year or as long as until 2009. Meanwhile, Bristol-Myers Squibb Co. and AstraZeneca PLC expect to submit a drug they are co-developing, saxagliptin, in the first half of 2008. That leaves Merck with a clear advantage, for now. "Merck was definitely not seen as the front-runner," said Kelly L. Close, a consultant on diabetes to drug makers and others. The delay in Galvus isn't good news for this new class of drugs, Ms. Close says. "But is it positive for Merck near term? Yes."

The long-term picture is less clear. Mr. Butler of Lehman Brothers says he hasn't yet changed his Januvia estimates past 2008 because of a lack of clarity on Galvus's fate. In a note to clients this week, Banc of America Securities analyst Chris Schott increased his estimate for Januvia's sales in 2011 to $1.97 billion, up from his prior expectation of $1.76 billion.

Merck was able to gain approval for Januvia sooner than originally expected, in part by limiting what it sought approval for from the outset. The drug was approved in October to be taken either alone or in addition to metformin, Actos or Avandia, other diabetes drugs. Since then, Merck has applied for approval for Januvia to be taken in three additional types of circumstances. The FDA is also expected to rule in March on Janumet, a pill combining Januvia and metformin.

Doctors have mixed views of this new class of drugs. Many say they are excited to have a new type of drug to try for patients with Type 2 diabetes. But some also question whether Januvia or its competitors are big improvements over older, less-expensive drugs such as metformin, which is generic.

John Buse, president-elect of the American Diabetes Association and a consultant for many companies in the industry, said he doesn't expect the skin-lesion issue to be a major problem, "but I think it's important for people to be aware that every new drug that's approved should be viewed with a certain skepticism about safety," he said. That includes Januvia, he said.

--Jeanne Whalen contributed to this story.

Write to Sarah Rubenstein at sarah.rubenstein@wsj.com