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Merck Pharmaceuticals (NYSE:MRK) is currently attempting to introduce a new insomnia treatment medication called Suvorexant, which has a very unique mechanism of action that limits the side effects associated with the commonly prescribed sedative hypnotics.

There has been a significant amount of hype around this drug's development recently, as it has shown promise in multiple clinical trials, however, it seems that many are overlooking the many obstacles in its way, the most important of which is whether it can topple the current reigning king: Ambien.

Insomnia

Insomnia and sleep-related complaints comprise a good portion of my patient encounters as a member of the healthcare profession, and are an extremely prevalent issue across the United States.

According to data from a Consumer Health Sciences Survey:

  • 37% of U.S. adults reported insomnia or sleep difficulties in the previous 12 months.
  • 53% of this group brought up their sleep issues with their doctors.
  • 83% of those who spoke with their doctors received a diagnosis and were treated with medication.

Unfortunately, we have a saying: "People don't know how to fall asleep, they know how to pass out," and after attempts at changing patients' sleep habits and routines usually fail, we resort to medication.

The most commonly used medications are sedative-hypnotics, and unfortunately, this class of medication can have significant side effects ranging from drowsiness the next morning or memory loss, to more severe side effects such as sleep walking or even sleep driving.

What Makes Suvorexant Unique:

Sanofi's (NYSE:SNY) Ambien, and Sunovion Pharmaceuticals' Lunesta both work by acting on a neurotransmitter called GABA -- its action on GABA essentially forces the brain to go to sleep. However, the receptors for GABA are also very important to many brain regions, including those for cognition, and as such, side effects such as attention problems and memory loss are extremely common.

Merck is attempting a new method of treatment by avoiding this portion of the brain. Its new drug, Suvorexant, attempts to block chemicals called orexins, which are mostly responsible for keeping people awake. This class of drug is known as Dual Orexin Receptor Antagonists, or DORAs, and because they originate in the hypothalamus instead of at the GABA receptors all over the brain, targeting them may have less impact on other brain functions.

So far it seems to be showing promising results, as the most common side effects are headaches and sleepiness, and no serious drug-related side effects have been reported in the 9 trials that have been completed so far.

The Insomnia Market

Merck is looking for a piece of action in the insomnia market, and has high expectations of it, citing most recently in a conference call that "The U.S. and Japan, the first two major launch markets, represent 75% of the $3.3 billion global insomnia market and 2 billion patient days of therapy in each of the markets."

While these expectations are high, it has to be recognized that there is an uphill battle to fight, and the issue is not necessarily with the drug's efficacy, but whether it can overthrow the current reigning champion.

Leaders in the Insomnia Market

(Source)

As is detailed above, Ambien is prescribed over 4 times more than its closest competitor, demonstrating just how significant its current position as king of the market is.

There are several key reasons Ambien holds this position:

  1. It is highly effective, and is a cheap generic drug that costs under $2 per pill. This is, on average, 21% of the price of other branded sleep drugs, making it the most cost effective sedative hypnotic on the market.
  2. It was prescribed over 40 million times last year alone, clearly demonstrating that the healthcare community has acknowledged it as being effective, and as such, physicians will be more inclined to prescribe it to new patients than take a gamble with new treatments.
  3. This amount of prescriptions demonstrates that there is a significant percentage of the insomnia population currently taking this medication, and patients, like most people, don't like change. If they are not experiencing the rare side effects that include "sleep-related eating, walking, cooking and driving," they will demonstrate an extreme aversion to transition from a medication that is working for them to another.
  4. In addition to this aversion, Ambien has an effect similar to anti-anxiety medications, like Xanax, in the Benzodiazepine class, which contribute even more potential for addiction on top of what sedative hypnotics are known for. (This has been recognized by the FDA and DEA, and is consequently why it is a class IV controlled substance.)

These issues are just a small part of the overall picture, but the key focus here is that no matter how effective this medication is, it will have a difficult battle to fight to gain a profitable position in this market.

Analysis

Many analysts are also seeing Sanofi's Ambien market share as being the quintessential mountain to climb, and as such, even analysts in favor of Merck are forecasting Suvorexant sales of just $350M-$460M in 2016, only about 1% of Merck's sales that year.

I am inclined to agree with these analyst proposed numbers, as the aforementioned challenges posed by Ambien are numerous and significant.

For Suvorexant to be successful:

  • It will need to prove its efficacy in the real world first, and even with outstanding results, it will take time for physicians to start prescribing it.
  • Suvorexant will need to be moderately cheap to produce and be competitively priced to Ambien.
  • A catalyst will be necessary to transition current patients being treated with Ambien to this new medication, whether it be an significant display of effectiveness with a lack of side effects, or a blow to Ambien from its side effects, FDA/DEA regulation, or another reason.

Now don't let me completely dissuade you from Suvorexant, as there is definitely potential here. I would specifically recommend you watch for how it performs on these issues:

  1. Can Suvorexant's unique mechanism of action prove to be as effective as sedative hypnotics, while greatly reducing the side effects?
  2. Can Suvorexant be produced at a competitive price to Ambien and Lunesta?
  3. Can Suvorexant pass its review with the Drug Enforcement Agency, and maintain a status as an noncontrolled substance (in comparison to Ambien's Schedule IV Status)?
  4. Will Merck develop a marketing plan that will rapidly introduce this medication to doctors, and as such, establish it as a common treatment for insomnia patients?

If Suvorexant can overcome these hurdles, it could show potential to boost Merck's overall sales in the future, and become well established as a standard medication for insomnia treatment. Until it starts to tackle these, however, I would steer clear of investing in Merck on the potential of this medication alone.

Source: Merck Pharmaceuticals' Suvorexant: A Wake-Up Call