Zacks_Analysts' Blog : FDA OKs Bristol's Diabetes Drug - Analyst Blog

The FDA approval comes against the backdrop of controversy on cardiovascular safety of diabetes drugs. Though data from clinical trials conducted by Bristol-Myers did not show any evidence of cardiovascular risk, the FDA has asked for a post-approval study to evaluate the drug’s safety in higher-risk patients including the elderly and those with existing heart problems. Onglyza has side effects of upper-respiratory-tract and urinary-tract infections and headaches along with certain allergic reactions such as rashes.

Being structurally similar to Merck’s (MRK) Januvia (sales of $1.4 billion in 2008), Onglyza is expected to compete with it directly. The struggle will intensify further if Takeda’s Alogliptin, under review at present, gets FDA approval. While the US approval of Novartis’ (NVS) Galvus may now be in jeopardy, it is available in other countries.

We expect Onglyza to record sales of about $300 million per year with the potential of peak sales of up to $1 billion in future. Since the drug received European approval in June, we expect its launch in the near future.

We continue to believe that Bristol-Myers shares are attractive at the current price based on valuation, strong expected EPS growth and progress in reinvesting in higher-growth opportunities. The company has taken several steps to compensate for the loss of exclusivity of Plavix (in 2011). These include the recently announced $1 billion extension in cost cuts in 2012-2013, the extension of the Abilify agreement with Otsuka, and the announced acquisition of Medarex (MEDX).

While the Plavix patent expiration will continue to be a concern, we believe it is manageable based on the company’s initiatives. We have a Buy recommendation on the stock.