Could This Look-A-Like Drug Be Merck's Next Big Seller?

Last quarter, Merck & Co. (NYSE: MRK) filed for FDA approval of a biosimilar to Sanofi SA's (NYSE: SNY) megablockbuster, long-acting insulin, Lantus. If the FDA approves Merck's drug, then it could begin competing for a share of Lantus' $6 billion plus in sales as soon as next year.

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Awaiting approval

MK-1293 is a Lantus biosimilar co-developed by Merck and Samsung Bioepis, a joint venture between Biogen and Samsung BioLogics.

Lantus is an insulin glargine used by both type 1 and type 2 diabetes patients to help keep their blood sugar steady throughout the day. Unlike mealtime insulin, which works like the insulin your body releases when you eat, Lantus releases insulin into your bloodstream at a slow and steady rate over the course of a day to better manage blood sugar in between meals and overnight.

Typically, diabetes patients are first treated with oral drugs, such as metformin, however, these drugs become less effective over time, forcing the addition of injection-therapies, such as long-acting insulin, to continue controlling the disease.

Because the global population is getting increasingly larger, wealthier, and living longer, more people are being diagnosed with diabetes. According to the International Diabetes Federation, 415 million people on the planet have diabetes and that number will grow to 642 million in 2040. Because most of these patients will ultimately progress to requiring long-acting insulin, Lantus has become one of the world's biggest selling drugs, generating over $6 billion in sales for Sanofi last year alone.

Undeniably, Lantus pending patent expiration and megablockbuster status means that there's amassive market opportunity for generic drugmakers -- especially in the United States where Sanofi produces about two-thirds of its Lantus revenue.

Hoping to capture a big chunk of those sales, Merck, with the help of Samsung Bioepis, evaluated MK-1293 in human trialsinvolving both type 1 and type 2 patients. Those trials demonstrated that MK-1293 works similarly to Lantus. In August, the FDA accepted for review Merck's application for MK-1293's approval, starting the clockon a scientific review to determine if there are no clinically meaningful differences in terms of the safety, purity, and potency between it and Lantus.

Angling for share

European regulators are also evaluating MK-1293, and an EU decision could be made before the end of 2016. While there's no guarantee the FDA would follow in the EU's footsteps on MK-1293, an approval in Europe could increase the likelihood that the FDA comes down in favor of the biosimilar next year.

If approved, MK-1293 could add meaningfully to Merck's top line, however, an approval alone won't guarantee that happens because the market for long-acting insulin is increasingly competitive. Merck will need to convince doctors to prescribe MK-1293 instead of Lantus and outmaneuver competitors that have launched their own long-acting insulin.

Sanofi may be one of Merck's fiercest competitors. In early 2015, Sanofi secured FDA approval of Toujeo, a next-generation, long-acting insulin, and the company is working ferociously to convert existing Lantus patients to it.

Merck will also need to sidestepdiabetes giantNovo Nordisk. Novo launchedTresiba, a long-acting insulin, last year, and in the first six months of 2016 Tresiba sales are up 167% year over year to more than $200 million.

Merck won't be the only Lantus biosimilar on the market either. Eli Lillycut a deal with Sanofi last year that allows it to begin marketing a Lantus SoloStar biosimilar this December. SoloStar is an injectable pen variation of Lantus that accounts for more than 60% of Lantus' U.S. revenue.

Overall, there's unquestionably a big opportunity to reshape the long-acting insulin market, and MK-1293 positions Merck nicely to get its fair share of sales in the market. However, Merck's $42 billion in annualized third quarter revenue means that it may be a while before MK-1293 sales reach levels that really impress Merck investors.

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Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned.Like this article? Follow him onTwitter where he goes by the handle@ebcapitalto see more articles like this.The Motley Fool recommends Novo Nordisk. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.