Merck's Keytruda on a Roll: Can it Retain the Spark in 2018?

With the rise in demand for immuno-oncology drugs and their combinations, Merck & Co., Inc.’s MRK anti-PD-1 therapy, Keytruda, is fast becoming the key top-line driver of the pharma giant.

Keytruda is marketed for many types of cancers and treatment settings including lung cancer, melanoma, head and neck cancer, classical Hodgkin’s lymphoma and bladder cancer.

Having crossed the $1-billion mark in sales during the third quarter of 2017, Keytruda became the second largest product in the Merck portfolio. The treatment fetched in sales of $2.51 billion in the first nine months of 2017, up 174% year over year. This upside is driven by the global launch of new indications, which further boosts demand. Keytruda sales are gaining particularly from a strong momentum in the indication of first-line lung cancer as the therapy is the only anti-PD-1 approved in the first-line setting.

The Keytruda development program also significantly advanced in 2017with regulatory approvals secured for six new indications in the United States, four in Europe and three in Japan. Key approvals for indications included advanced bladder cancer, advanced microsatellite instability-high cancers and the first approval of a combination therapy with Eli Lilly’s LLY cancer drugs Alimta (pemetrexed) and carboplatin (pem/carbo) for first-line lung cancer.

The new approvals expanded the patient population, driving up sales in the third quarter. This momentum should be maintained in the fourth quarter and in 2018 as well.

Meanwhile, Keytruda is being studied for more than 30 types of cancer in above 600 studies including excess of 400 combination trials. Merck is collaborating with several companies including Amgen, Inc. AMGN, Incyte, Glaxo and Pfizer, Inc. PFE, separately for the evaluation of Keytruda in combination with other regimens. Data from several programs on Keytruda were presented at medical conferences in 2017.

We expect Merck to present data from several key Keytruda studies this year including a combination study with Incyte’s epacadostat in first-line metastatic melanoma. Also, Keytruda could get an approval for the relapsed or refractory primary mediastinal large B-cell lymphoma indication this year with FDA action expected in April.

Conclusion

Merck did witness some setbacks regarding Keytruda’s pipeline program in 2017. In October, the company announced a delay in the readout from an important lung cancer study and postponed it to 2019. This was due to the inclusion of overall survival as a co-primary endpoint in the KEYNOTE-189 phase III study of Keytruda in first-line lung cancer. This in turn raised investor concern as the delay in the readout can give competitors a chance to gain traction in the lung cancer market.

Also, three combination studies of Keytruda on multiple myeloma were put on clinical hold, following reports of death in Keytruda groups last July.

Also Merck’s top line has been lately hurt by a generic competition from several drugs and pricing pressure. We believe, Keytruda has immense commercial potential and coupled with some other newer drugs, can ease the impact of genericization. Although rivalry in the immuno-oncology market has risen following FDA approval of newer oncology treatments like Pfizer’s Bavencio (avelumab) for Merkel-cell carcinoma (MCC) and bladder cancer indications and AstraZeneca’s Imfinzi (durvalumab) for bladder cancer, we believe that Keytruda can give these drugs a tough run for money as there is ample scope for growth in the immuno-oncology space.

Merck carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Merck have declined 6.5% in a year against the industry's rally of 18.1%.

 

 

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