Rival giants team on diabetes as Merck partners with Pfizer on SGLT2 combo

Jockeying for a leading position in the high-stakes race to develop a new generation of blockbuster diabetes drugs, Merck ($MRK) is hitching a ride with Pfizer's ($PFE) late-stage SGLT2 candidate, ertugliflozin (PF-04971729). The pharma giant has paid out $60 million in an upfront fees and milestones to Pfizer as they team up on Phase III trials of the drug, including a study to examine a combination with the bestselling Januvia.

Merck doesn't generally trouble itself to spell out deal terms, and it performed true to form by declining to detail the milestones it is committing to in this collaboration of giants. The late-stage work is slated to begin later this year, and Merck will share revenue and costs with Pfizer on a 60/40 split.

J&J achieved the first U.S. approval of an SGLT2 drug just weeks ago when the FDA signed off on Invokana (canagliflozin), though analysts have been debating for some time now just what kind of impact this new drug class will have on the market. Forxiga, the new SGLT2 drug from Bristol-Myers Squibb ($BMY) and AstraZeneca ($AZN), was rejected in the U.S. on the FDA's safety concerns and then approved in Europe. 

These new diabetes drugs excrete glucose in urine, offering an alternative to some tried and true products that have been on the massive diabetes market for some time. And J&J is hoping that the weight-loss seen in its late-stage program will help deliver blockbuster sales, blunting any kickback from doctors and consumers over the persistent rate of genital infections seen in clinical studies. Invokana also beat Januvia in a head-to-head study that reported out last year, perhaps lighting a fire under Merck to do the deal we're seeing today.

Roger Perlmutter

Januvia earned slightly more than $4 billion last year, while Janumet garnered $1.6 billion. 

The deal marks the first new pact under Merck's new R&D chief, Roger Perlmutter, who took the helm at research in the middle of April. It's doubtful, though, that he had much of an impact on a deal that must have been in the works well before his arrival. Merck's decision to collaborate with Pfizer, which has seen a surge in new approvals recently after years of setbacks in the clinic, follows a lengthy stretch of R&D pratfalls.

The news of Merck joining forces with Pfizer to develop new drugs took some longtime industry observers by surprise.

"This is like the Yankees and Red Sox combining their scouting departments looking for prospects," tweeted John LaMattina, the former head of Pfizer R&D, now a partner at PureTech. "Surprising!"

"Merck continues to build upon our leadership position in the oral treatment of type 2 diabetes through our own research and business development," said Nancy Thornberry, senior vice president and diabetes and endocrinology franchise head, Merck Research Laboratories. "We believe ertugliflozin has the potential to complement our strong portfolio of investigational and marketed products, and we look forward to collaborating with Pfizer on its development."

- here's the press release

Special Report: Top diabetes drug pipelines of 2012