Pfizer and Merck & Co said they will co-develop Pfizer's experimental type 2 diabetes drug ertugliflozin, both as a standalone product and in combination with other drugs, including Merck's blockbuster Januvia.

The Pfizer medicine belongs to a new class of diabetes treatments called SGLT2 inhibitors. Now nearing Phase III late-stage trials, it is behind similar drugs in development -- including Johnson & Johnson's Invokana (canagliflozin) which was approved by U.S. regulators in late March.

Under their partnership, Merck and Pfizer will collaborate on development and marketing of ertugliflozin as well as on tablets that pair it with Januvia and the widely used oral treatment metformin.

Januvia is the leading member of another class of diabetes drugs called DPP-4 inhibitors. It is also sold in combination with another type of drug called metformin, under the brand name Janumet. The Januvia/Janumet tablets have annual sales of $5.75 billion, making them Merck's biggest products.

Richard Purkiss, an analyst with Atlantic Equities, said little is yet known about the Pfizer drug, but he said both companies stand to gain by developing it together.

"If you add Pfizer's drug to Januvia -- Merck's leading DPP4-inhibitor -- that would extend the Januvia franchise even further and help Merck," Purkiss said.

"And the beauty of this from Pfizer's perspective is they will be piggybacking on Merck's (Januvia) franchise and are also getting a contribution from Merck for the Phase 3 program," Purkiss said.

Pfizer has so far received $60 million in upfront and milestone payments from Merck under the ertugliflozin partnership and will be eligible for additional payments associated with clinical, regulatory and commercial milestones.

Merck and Pfizer will share potential revenue and certain costs on a 60/40% basis, the U.S. companies said.

Merck will continue to retain the rights to its existing portfolio of Januvia-containing products.

Purkiss said it was too early to speculate on potential sales of ertugliflozin, and whether it has blockbuster potential, because analysts have not yet seen clinical data from its trials.