Last week, you may recall, we wrote that a Wall Street analyst alerted investors to new safety problems Novartis is having with its diabetes med. Tim Anderson of Sanford Bernstein indicated the “unanswered questions,” which a Novartis spokesman dismissed as “market speculation,” may cause the drugmaker not to launch the troubled treatment in several European countries.

Today, Novartis fessed up. And what was sniffed at as mere rumor was, in fact, well, fact. The drugmaker has found high doses are causing elevated liver enzume levels, and the finding will delay the drug’s entry in Europe as a revision in prescribing info is made.

“Although the ‘fix’ of using a lower dose of Galvus seems simple enough, it means that Novartis has a smaller pool of patient data at the dose it wants to market,” Denise Anderson, analyst at Landsbanki Kepler, tells Reuters. “In our view, this increases the difficultly of gaining US approval. In addition, a liver safety signal may hurt sales potential.”

In the US, Novartis received an approvable letter for Galvus in February, but a safety study required by the FDA may delay Galvus until 2010, if the drug gets that far. This wasn’t the first setback - a year ago, the FDA delayed approval by three months waiting for more safety data after skin lesions had been seen in monkeys.

Of course, this is good news for Merck, which last fall launched Januvia, a med in the same class as Galvus. The Merck drug, however, has largely escaped the safety concerns that have plagued Novartis. “One has to question how Novartis will successfully position Galvus relative to Merck’s Januvia,” Morgan Stanley analysts said in a note, according to Reuters. “Januvia is a true once daily medication, with an apparently clean side effect profile and has already gained FDA (approval), thus providing it with a 3 year advantage.”

Well, almost. Merck recently disclosed receiving reports that some patients developed serious complications, including a potentially fatal skin condition called Stevens-Johnson Syndrome, and serious allergic reactions. The info was added to the Januvia label.

Data showed patients taking 100 milligram doses of Galvus once daily had more frequent liver enzyme elevation when compared to those taking 50 mg per day or 50 mg twice daily, according to the drugmaker. Novartis has proposed using once- or twice-daily 50 mg doses, rather than the single higher dose, and will also discuss the data and recommendations with other regulators beyond the Committee for Medicinal Products for Human Use.