Sept. 24 (Bloomberg) -- European regulators rejected Merck KGaA’s multiple sclerosis pill cladribine, the second setback this week for the German drugmaker in the race with Novartis AG for a share of a new market.
The European Medicines Agency found the medicine’s benefits don’t outweigh the risks, Darmstadt, Germany-based Merck said in a statement today. Merck is weighing an appeal and still believes cladribine has the potential to generate $1 billion in revenue a year, said Elmar Schnee, head of the company’s drug unit, in a telephone interview. The stock dropped the most in more than a year.
Merck trails Novartis in the race to provide MS patients with a pill in the U.S., where the Swiss drugmaker won approval on Sept. 22 for its Gilenya tablet. Today’s cladribine decision, the latest regulatory blow for Merck, may leave investors concerned about the pill’s chances of approval in the U.S., said Leslie Iltgen, a Frankfurt-based analyst at Bankhaus Lampe KG, in a telephone interview.
“They were really betting on cladribine,” said Iltgen, who rates the stock a “buy.” “It is a setback, no doubt about it.”
Merck fell 7.18 euros, or 10 percent, to 63 euros at 5:35 p.m. in Frankfurt trading. It was the biggest drop since July 24, 2009. WestLB AG, Helvea SA and Piper Jaffray & Co. cut their ratings on Merck’s shares.
European authorities were concerned about four cancer cases observed during clinical testing of cladribine and about the drug’s damping of the immune system, Schnee said. An oral medicine would allow MS patients to avoid the injections needed for current treatments such as Teva Pharmaceutical Industries Ltd.’s Copaxone, Biogen Idec Inc.’s Avonex and Merck’s own Rebif, the top-selling drug in the German company’s pharmaceutical division.
“It’s a sad day for MS patients in Europe,” Schnee said. “I’m really surprised at the verdict.”
Multiple sclerosis causes the body to attack nerve cells through the immune system. Both cladribine and Novartis’s Gilenya blunt the attack by targeting white blood cells that harm the protective coating of nerve cells. Gilenya keeps lymphocytes, a type of white blood cell, from being released into the immune system, while cladribine kills lymphocytes.
One distinction between the two drugs is that cladribine’s effect lasts longer, said Jeffrey Cohen, a staff physician at the Cleveland Clinic’s Mellen Center for Multiple Sclerosis Treatment and Research, in a telephone interview yesterday. Cohen led a final-stage clinical trial comparing Gilenya to Biogen Idec’s Avonex.
The prolonged impact makes cladribine more convenient for patients, who need only take pills a few days a year, Cohen said. Doctors may be concerned about the drug’s long-term influence on the immune system, he said, because “you can’t undo the effects.”
European sales would have accounted for about $700 million of an estimated $1.5 billion in peak annual revenue for cladribine, Merck’s most promising new medicine, Cornelia Thomas, a London-based analyst for WestLB AG, said in an interview before the decision. European regulators last year rejected the German company’s top cancer drug, Erbitux, for use against lung tumors.
“Cladribine is their biggest pipeline hope,” Thomas said. “If it falls flat on its face, it’s hard to see where future growth is going to come from at Merck Serono.”
U.S. regulators agreed to give cladribine a priority review in July, cutting the time it will take to decide on the drug from 10 months to six. The Food and Drug Administration is expected to rule on the drug in the fourth quarter, Schnee said. The regulator rejected Merck’s first submission in November, saying it was incomplete.
The German company won approval to sell cladribine in Russia on July 12 and in Australia on Sept. 3.
Backing in Europe would have helped Merck make up the ground lost to Novartis, which awaits a decision from European regulators on Gilenya in the next six months. The Novartis drug may bring peak revenue of $3 billion a year, Andrew Weiss, a Zurich-based analyst for Bank Vontobel AG, wrote in a note to investors today.
Novartis gained 1.05 Swiss francs, or 1.9 percent, to 56.6 Swiss francs in Zurich trading.
Merck KGaA isn’t affiliated with Merck & Co. of Whitehouse Station, New Jersey.
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