Does Merck need more than Keytruda?
- Merck & Co. reported 5% growth for both fourth quarter and full-year sales, driven mostly by Keytruda. The blockbuster immuno-oncology drug fetched almost $2.2 billion from October through December and $7.2 billion across all of 2018 — amounting to year-over-year increases of 66% and 88%, respectively.
- U.S. regulators have already approved Keytruda more than a dozen times across a variety of tumor types. Yet Merck wants to further expand the drug's label. It expects 11 mid- to late-stage Keytruda trials to readout this year, including first-line studies in colorectal, gastric and triple negative breast cancers.
- Keytruda is responsible for the bulk of Merck's R&D spend, which totaled almost $10 billion in 2018. Roger Perlmutter, president of Merck Research Laboratories, noted on an earnings call Friday that Keytruda monotherapy trials have peaked. Now it's Keytruda combination studies, as well as investigations into the cancer drugs Lenvima and Lynparza, which are fueling R&D expenses.
The meteoric rise of Keytruda (pembrolizumab) has delighted Merck investors. The big pharma's stock value rose about 50% over the last two years and climbed further following Friday's fourth quarter earnings call. Shares were up nearly 4% to trade above $77 per share in late morning trading.
Wall Street has generally reacted positively to Keytruda's performance too, though some hang-ups remain. Merck touts how its current pipeline is one of the broadest the company has seen in years, yet almost half of its 20 late-stage clinical trials focus on Keytruda.
As such, some analysts are concerned Merck is putting a lot of its eggs in a single basket.
"What are we missing externally that Merck sees internally?" Cowen & Co.'s Steve Scala asked of Merck's pipeline on the earnings call.
Merck CEO Ken Frazier pointed to growth opportunities for other cancer therapies like Lenvima (lenvatinib) and Lynparza (olaparib) as well as the company's HPV vaccines Gardasil and Gardasil 9. Sales of those vaccines rose 37% in 2018 to reach $3.15 billion.
Analysts aren't just worried about the volume of Merck's pipeline dedicated to Keytruda, but the cost as well. Merck's spending billions of dollars researching the drug for new or earlier-line indications, which could hinder the company's operating margin goals.
Executives foresee overall R&D expenses growing at a faster rate than sales in the near-term as they invest heavily in Keytruda, Lynparza, Lenvima and vaccines. But in a few years time, they expect the reverse will be true and sales growth will outpace R&D.
The lung cancer drug market should help facilitate that switch. There, Keytruda has become a leading therapy since securing approval based on the KEYNOTE-024 study, which showed first-line treatment with the drug outperformed standard of care in patients who expressed high levels of a biomarker known as PD-L1.
Since then, Keytruda has received more first-line lung cancer approvals in the U.S. and abroad, including one in combination with chemotherapy for metastatic non-squamous non-small cell lung cancer irrespective of PD-L1 expression, that give the brand plenty of room to expand.
"We're very early on in the launch outside the U.S. in lung cancer," Frank Clyburn, Merck's chief commercial officer, said on the earnings call.
"In fact, most of our growth outside of the U.S. is primarily being driven off of the PD-L1 high-express patient population and KEYNOTE-024. So we're just rolling out our chemo combinations around the world and anticipate significant growth outside the U.S.," he said.
Evercore ISI's Umer Raffat highlighted in a Feb. 1 investor note that Keytruda sales outside the U.S. beat analysts estimates.
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