FDA Keeps Novartis Waiting

It's easy to blame the Food and Drug Administration for being too conservative whenever it fails to approve a potentially useful new drug. Without seeing the drug's data package, though, the most we can do is speculate on what prompts the FDA to make its decisions. Investors in shares of drugmaker Novartis (NYSE: NVS  ) are having these thoughts today, after the company announced that the FDA had issued an approvable letter for its diabetes compound named Galvus.

The FDA had already stalled its decision on Galvus for three months back in November, but today's approvable letter is a much worse outcome for the drug, considering that the agency requested more clinical data and another study testing it in patents with kidney impairment.

While Novartis didn't reveal whether the FDA was looking for a long-term or short-term study, the request for another clinical trial means that it will be months at best before Novartis is able to file a response to the approvable letter.

Galvus belongs to a new class of type-2 diabetes treatments named dipeptidyl-peptidase 4 (DPP-4) inhibitors. The only drug on the market in this novel class of treatment is Merck's (NYSE: MRK  ) Januvia, which received regulatory approval last year. In its first quarter on the market this past quarter, it brought in a strong $42 million in sales and is expected to be one of Merck's main revenue growth drivers going forward.

The FDA hasn't been nice to Novartis lately. In December, another one of its future blockbusters in blood pressure treatment, Tekturna, received a three-month review extension as well. Word back on possible regulatory approval should arrive sometime next month.

Novartis stressed that the delay in bringing Galvus to market wouldn't have an impact on its 2007 financial guidance of sales gains in the "mid to high single digit rate" and the vaguely worded "record earnings" for the year. Nonetheless, the delay is a big setback, as now Merck will have ample time to entrench Januvia as the DPP-4 inhibitor of choice, and the marketing war once Galvus gets approved will be that much more difficult.

Merck is a Motley Fool Income Investor pick.

Fool contributor Brian Lawler does not own shares of any company mentioned in this article.