Last week, Merck (MRK) received a favorable opinion from the European Medicines Agency’s (EMEA) Committee for Medicinal Products for Human Use (CHMP) for its diabetes drugs Januvia (sitagliptin) and Janumet (sitagliptin and metformin). The committee recommended the drugs to be used as add-ons to insulin for the treatment of type 2 diabetes.

In the US, a supplemental New Drug Application (sNDA) for the use of Januvia and Janumet in combination with insulin has been accepted by the FDA and is currently under review.

While the favorable opinion from the committee is good news, we remain concerned about the risk of inflamed pancreas for patients treated with Januvia or Janumet. Although the company officials refuse to accept the link, the FDA has stated that 88 cases of acute pancreatitis, including two cases of hemorrhagic or necrotizing pancreatitis, had been reported since the drug’s approval in October 2006 through February 2009. Among the reported cases, 19 patients faced problems within 30 days of using the drugs while 47 cases were resolved after use of the drugs were discontinued. The agency has asked the doctors to monitor their patients closely.

This is not the first instance when a diabetes drug has been linked to pancreatitis — the previous case was Byetta, co-marketed by Amylin (AMLN) and Eli Lilly (LLY). In August 2008, Amylin management reported that six patients had developed hemorrhagic or necrotizing pancreatitis while on Byetta therapy. Of these, two patients died. Following this, the FDA asked Amylin to include the risk in Byetta’s label.

We hope the issue will be resolved shortly as both Januvia and Janumet form a significant part of Merck’s portfolio. Combined sales of the two drugs were $617 million in the second quarter of 2009, an increase of 52%. The diabetes market is huge and provides significant commercial opportunity. We have a Neutral recommendation on the stock.

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Read the full analyst report on “LLY”
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