Novartis announced this morning that the FDA has asked for more data on DPP-4 inhibitor Galvus, following its three-month delay. Novartis was very transparent on its conference call with analysts, which we appreciated, and they made it clear that their perspective was theirs alone and they haven't yet spoken to the FDA.
Specifically, the FDA has given an "approvable" letter to Novartis, which means they think that Galvus can be approved, but not until they get more information about how Galvus behaves in type 2 patients with moderate to severe renal problems. Novartis didn't do separate studies in people with more serious renal problems, while Merck did (a small 25-person 12 week study) and found no issues. This question has arisen because some skin lesions came up when Novartis tested Galvus in monkeys (although it hasn't been seen in humans or other animal species), and the FDA is being cautious about the result. The FDA has made it clear that they still don't understand the cause or implications of the skin lesions in the monkeys, who got a significantly higher dose than humans (on the order of 6-8x higher, as we understand it).
Merck also studied Januvia in monkeys and had no problems - although from speaking to doctors at ADA Postgrad this weekend, it sounds like it was a different species of monkey and a lower dose, more like 2-3x. We can't really believe the doses could be so different and these could be considered equivalent studies. It's hard to know how that would have impacted results, but if Novartis had used a lower dose perhaps it also would not have seen this safety problem. Shouldn't things like this be consistent from company to company? OR, maybe Novartis just decided to use a super-high dose ... seems like this should be standardized.
What this means in our view: 1) Novartis is extremely unlikely to see approval this year - we see the delay as nine months at the very least and more likely closer to 12-18 months, depending on how many sub-populations Novartis needs to test in how many people. Given the evidence in humans, we think they still have a strong chance of approval - but we don't agree that they will just have to do what Merck did. Merck did 25 patients over 12 weeks and found no issues - but they had no monkey issues. Novartis does so the FDA may want more exploration. 2) This will raise some "class effect" questions, right or wrong - it's hard to know whether this is a question about the class because we don't have a "head-to-head" study in monkeys or in this "severe" renal impairment population. Additionally, given that DPP-4 is found everywhere in the body and interacts with at least 60 known peptides, class side-effects should not be completely unexpected. 3) We note that we have written a few times that companies seem to be trying to blur the line between safety and side effects. It's true that side effects in this class seem pretty tolerable. That's very different from having any long-term data, and we continue to believe they need much more of it, especially because it's hard to understand exactly how the class works.
Implications for the stocks:
Novartis: Negative. Some may see this as unfair (or at least overly cautious) reaction by the FDA. Our take is that the FDA is behaving correctly - Novartis did the monkey studies, something unexpected came up, and now it needs to be better understood. One could argue that Novartis should not have used such a high dose, or that Merck should have used a higher dose - no matter. What's done is done and what was found has been found, and now they should all move forward. Although it sounds like Merck studies in monkeys may not have been as robust, ostensibly the FDA approved the Merck study design.
Ultimately, Novartis may be penalized for having a more robust clincial trial strategy than Merck with regard to this class - indeed, we feel the entire Novartis regulatory strategy has been more robust than Merck's. For example, their submission was broader (it include sulfonylurea and insulin studies) and they don't seem to have the same wash-out issues that Merck does (some have questioned the baseline A1cs that Merck has reported for its trials and when those were measured).
Bottom line, we were very impressed with Novartis pharma head James Shannon on the analyst call - and also think the FDA action is probably not that unexpected given the issues that came up in the trial, especially the fact that they can't explain the skin lesions.
Merck: Clearly positive. It's clearly a positive that Merck won't have competition from Novartis anytime soon. Whether or not there will be some pull-back on Januvia prescribing if this is seen as a potential class effect (meaning whether Novartis' issues mean questions for all DPP-4 inhibitors) is an open question - but even if there is, this is likely less worry for them at this point than if they had a new competitor with pockets of equal depth like they would have faced with a Novartis approval for Galvus. Actually, we do not think there will be a class effect worry, ultimately. As Dr. Wayman Wendell Cheatham, the Medical Director of the Medstar Clinical Research Centers in Washington DC, reminded us earlier today: "Januvia already has dose adjustment labeling [in moderate or severe renal insufficiency] and the FDA would [probably] have already required a further adjustment or new labeling if there were any situation emerging with that drug that was the basis for what is being required of Galvus."
It's also a big win for Merck that they will very likely have Janumet approved now well before Galvus. We expect endos (at least those who keep prescribing the class) still to start on Januvia -- many endos like to get the dosing for each drug right before they combine them.
Amylin: Neutral to very positive. If this question of class effect is ignored by doctors and patients, the effect is likely neutral to Amylin. If a whiff of anything strange about the class prompts doctors to "stand aside" and prescribe another incretin (Byetta), then Amylin should feel the benefit, particularly as LAR comes to market, substantially narrowing the convenience gap (one shot a week versus an oral agent).