March 27 (Bloomberg) -- GlaxoSmithKline Plc’s cervical cancer vaccine may not be the shot in the arm the European drugmaker expected after all.

Glaxo’s Cervarix, once touted as more potent than Merck & Co.’s rival vaccine Gardasil, has faced regulatory delays in the U.S. Meanwhile, Gardasil sales are waning because the pool of girls who haven’t been vaccinated is shrinking, an indication that Glaxo’s chances for a blockbuster product are disappearing.

“Glaxo is too late for the party,” said Ira Loss, an analyst with Washington Analysis in D.C., who has followed the U.S. Food and Drug Administration for more than 30 years.

Cervarix, which protects women against the sexually transmitted human papillomavirus, had the potential to generate annual revenue of as much as $4 billion, according to Jeffrey Holford, an analyst at Jefferies International. He has cut the estimate to $1.2 billion and says even that may be ambitious.

Merck’s marketing campaigns for Gardasil, backed with television and print advertisements, have tapped many of the teenage girls who were vaccination candidates, according to company executives. The drugmaker’s sales of Gardasil plunged 16 percent last quarter to $286 million.

“Glaxo is three to four years late into the market,” Holford said. “They have lost the bulk of the opportunity in the U.S.”

Unlike traditional medicines that get rising revenues for years after regulatory approval as doctors become more comfortable with them, the biggest market for a new vaccine exists soon after it’s introduced.

Different Vaccines

Glaxo of London first asked the FDA to approve Cervarix in March 2007. The U.S. agency turned down Glaxo’s request for an accelerated review and said it couldn’t clear the product without longer-term data on safety and effectiveness. Neither Glaxo nor the FDA gave details about what regulators asked for.

The product contains a chemical, or adjuvant, designed to boost the patient’s immune response and make the vaccine more effective. Unlike Merck, which uses a more traditional adjuvant, Glaxo said it used a proprietary one known as AS04, which may have spurred the FDA to ask for longer studies to check its safety, analysts said.

Glaxo last June said it would submit the results of an advanced clinical study, known as HPV-008, to the FDA in the first half of 2009. The company will also refile its FDA application in the first half, Sarah Alspach, a spokeswoman, said in a telephone interview.

Glaxo’s Troubles

“I don’t expect to the see the Food and Drug Administration responding to them until at least six months after they make the submission,” suggesting the vaccine may not be available in the U.S. before 2010, Washington Analysis’s Loss said in a telephone interview.

Glaxo needs Cervarix to offset an onslaught of cheaper generic copies that eroded U.S. sales of at least four medicines last year. Profit fell last quarter. Safety concerns dragged down demand for the diabetes drug Avandia, whose sales slid 40 percent last year. The company’s stock has dropped 14 percent in the past three months, the fourth-worst performance in a Bloomberg index of 18 European drugmakers.

Vaccine sales are growing by 15 percent to 20 percent a year now at Glaxo, and that will increase “significantly” in the next five years, said Jean Stephenne, president of the company’s biologicals division, in a telephone interview. Cervarix is one of about half a dozen new immunizations that will drive the growth, he said.

Gains in Europe

Not all regulators share the FDA’s concern about Cervarix. The vaccine is approved in more than 60 countries, including all of Europe, Australia and Singapore. National health programs in the U.K. and the Netherlands have selected the product instead of Gardasil.

“The Dutch and the British tenders were winner takes all, so everybody who gets vaccinated in those countries only get Cervarix,” Chief Executive Officer Andrew Witty told investors at Cowen & Co.’s Annual Health Care Conference on March 17. “That demonstrates our willingness to win those tenders and also the strength of the vaccine.”

The product’s sales grew to 125 million pounds ($181.3 million) in 2008. Gardasil, by contrast, is sold in 109 countries and generated $1.4 billion for Merck last year.

‘Like Viagra’

Cervarix may lag behind Gardasil even after it’s approved. The Merck vaccine, sold in Europe with Sanofi-Aventis SA, will probably continue to “dominate Cervarix much like Viagra dominated the drugs that followed its pioneering effort within the erectile dysfunction category,” said Jake Dollarhide, chief executive officer of Longbow Asset Management Co. in Tulsa, Oklahoma, who holds Merck shares.

The best way to protect women against cervical cancer, which kills 250,000 females a year, is to inoculate them when they reach puberty, before they become sexually active. In the U.S., most teenagers who are willing to be vaccinated already received Merck’s shot.

Both Cervarix and Gardasil protect against two strains of the human papillomavirus that are responsible for about 70 percent of cervical cancer cases. Gardasil also covers two strains that can cause genital warts.

Sharing $10 Billion

“The reservoir of patients to benefit from either Gardasil or Cervarix is worth $100 billion,” Glaxo’s Jean-Pierre Garnier, who was chief executive until May, told analysts and reporters in January 2008. “If we penetrate the market 10 percent in a couple years, it will be the two of us together selling $10 billion. And we’re going to do a lot better than 10 percent, I can guarantee you that.”

Merck and Glaxo have been counting on expanding the market to older women to keep sales growing, but it’s proving to be a hard sell. Gardasil’s sales drop last quarter prompted Whitehouse Station, New Jersey-based Merck to slash its forecast range for the product this year by $300 million.

The FDA in January delayed Merck’s application to sell Gardasil for women ages 27 to 45 for a second time, asking for more data from a four-year study. Merck also applied to the FDA to get the product approved for boys.

“The companies could have misjudged the likely demand or potential demand for people who lie outside the target age group” of adolescent girls, said Nick Turner, an analyst at Mirabaud Securities in London. “If Glaxo, Merck and Sanofi are unable to expand into these new markets, then peak sales have already happened.”

To contact the reporter on this story: Michelle Fay Cortez in London at mcortez@bloomberg.net

Last Updated: March 26, 2009 20:00 EDT