The Case For Invokana® -- As A Mega-Blockbuster

As I mentioned last night, most Wall Street analysts are offering only moderately bullish estimates of Invokana^®'s peak 2017 sales, this early in the game. And I partially agree -- it makes some sense to be conservative here, given the questions about other drug candidates in this new class.

On the other hand, it appears that Invokana will have a very clean FDA label (very few scary warnings -- no black box warnings), and will be able to note the study results showing "off-target" weight-loss effects -- in most patients on the drug. Given that obesity and this type of diabetis are closely associated, that may be a very powerful finding, for patient conversion -- to this new class. It will be a once a day pill, and very convenient to take.

In addition, J&J's Janssen unit is now saying that the wholesale price will be about $8.77 per pill -- so, retail will be about 30 percent more, or around $11.40 per pill. That makes the per patient cost about $4,160 a year. That makes the potential "doughnut hole" problem manageable, for the millions of US diabetis patients now relying on Medicare/Medicaid, to pay for their treatment costs. With some 26 million Americans suffering Type II diabetis, the disease burden is vast (as is the potential market).

At 365 pills a year, at $11.40 per pill, Invokana need only acheive five per cent market penetration in the US alone, to eclipse my predicted $5.4 billion in annual sales. Canagliflozin has already been filed for approval in the EU, and J&J may hear by mid-this-summer, on that application.

Said another way, even if we assume only one in four patients will be good candidates for the drug, it only need capture a fifth of those patients to reach the $5.5 billion in annual sales, in the US alone.

Now suppose that "only" seven per cent of US patients switch, or begin therapy on Invokana -- that's a $7.57 billion a year revenue stream. Yes, that means my thesis is about ten times richer than Wall Street's current prognostications.

My corallary thesis is that a sizable chunk of these sales will come right out of Merck's Januvia^®/Janumet^® franchises.

Don't misunderstand: Januvia and Janumet will still sell into the low billions of dollars per year, but it won't continue to be above $5 billion a year much longer, in my estimation. I'd guess that Merck will see declines to around $2.5 to $3 billion a year -- by 2016 or 2017. That's my guess.

If that scenario occurs, my guess is that it costs Merck about $2 per share in its NYSE trading price, all in.

And given how far away from the Wall Street endorsed estimates I am -- at this point -- I would argue that my predicted impact is not priced into Merck's NYSE trading, as of last Thursday night. So (absent some other unrelated material developments) we could see a fairly-valued Merck price closer to $41 than $44, in the next few weeks, on the NYSE. Of course, you should do your own diligence here.

Now let's wait to see what happens. [BTW, I am not long or short in any of these companies at the moment.]

Do stay tuned.