Merck's Keytruda On A Roll: Can It Retain The Momentum?

As demand for immuno-oncology drugs and their combinations rises, Merck & Co., Inc.’s (NYSE:MRK) anti-PD-1 therapy, Keytruda, is being touted as a significant top-line driver for this Kenilworth, NJ based pharma giant.

Keytruda is presently marketed for the treatment of first-line as well as second-line non-small cell lung cancer (NSCLC), advanced melanoma and previously treated recurrent or metastatic head and neck cancer (HNSCC).

Keytruda brought in sales of $584 million in first-quarter 2017, up 20.9% sequentially and 134.5% year over year. Sales were driven by label as well as geographical expansion. Keytruda sales gained from launches in new indications like first-line lung cancer (approved in Oct 2016), and recurrent or metastatic head and neck cancer (approved in Aug 2016) in the U.S.; and second-line and first line NSCLC across the world.

At the first quarter conference call held in May, the company said that the “significant acceleration” in PD-L1 testing for first-line NSCLC patients experienced in the fourth quarter of 2016 had started to translate into higher demand. Meanwhile, Merck also mentioned at the call that it was working on securing reimbursement for the drug in first as well as second-line NSCLC indication outside U.S. and lung cancer sales should become a much larger contributor outside the U.S. as the year progresses.

In fact, Keytruda uptake in the first-line lung cancer indication and potential label expansion - with FDA action pending on multiple regulatory applications - are catalysts for the stock in 2017.

In the last couple of months, there were a series of regulatory approvals for label expansion of Keytruda that should drive sales going forward.

Importantly, last month, the FDA granted accelerated approval to Keytruda for use in combination with Eli Lilly & Company’s (NYSE:LLY) cancer drug Alimta (pemetrexed) and carboplatin (pem/carbo), a commonly used chemo regimen, in first-line NSCLC. Note that this is the first FDA approval for Keytruda as a combination therapy, which can significantly expand its access in the lung cancer market.

Also, last month, Keytruda was approved for the first-as well as second-line treatment of certain patients with locally advanced or metastatic urothelial carcinoma, a type of bladder cancer.

Also, the drug gained FDA approval last month for use in adult and pediatric patients with unresectable or metastatic, microsatellite instability-high (MSI-H) or mismatch repair deficient (dMMR) solid tumors that have progressed following prior treatment and who have no satisfactory alternative treatment options or colorectal cancer that has progressed following treatment with a fluoropyrimidine, oxaliplatin, and irinotecan. This makes Keytruda the first cancer therapy approved for use based on a biomarker regardless of tumor type.

In Mar/Apr 2017, Keytruda received FDA and EU approval for refractory classical Hodgkin lymphoma (cHL) - the first Keytruda approval for hematologic malignancy indication.

Keytruda is continuously growing and expanding into new indications and markets globally.

Meanwhile, Keytruda is also being studied for more than 30 types of cancer in 500 trials. Almost 50% of these trials are in combination with other cancer drugs. Merck is collaborating with several companies including Amgen, Inc. (NASDAQ:AMGN) , Incyte, Glaxo and Pfizer, Inc. (NYSE:PFE) separately for the evaluation of Keytruda in combination with other regimens.

Conclusion

Merck’s top line has been lately hurt by generic competition for several drugs and pricing pressure. We believe Keytruda has immense commercial potential and it coupled with some other newer drugs can ease the impact of genericization. Meanwhile, though competition in the immuno-oncology market is rising following recent FDA approval of Pfizer’s Bavencio (avelumab) in MCC and bladder cancer indications and AstraZeneca’s Imfinzi (durvalumab) for bladder cancer, we believe Keytruda can give these drugs a tough run 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.

Merck’s shares are up 11.2% year to date, comparing unfavorably with an increase of 12.3% witnessed by the Zacks classified Large-Cap Pharma industry.

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