Merck’s Keytruda gets chemo-combo approval for lung cancer; science, stars align for multi-billion medicine

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The News:

Merck & Co. announced Wednesday (May 10, 2017) that the FDA awarded accelerated approval to Keytruda (pembrolizumab), in combination with Eli Lilly & Co.’s chemotherapy regimen Alimta (pemetrexed) and carboplatin, for use in previously untreated patients with metastatic non-squamous non-small-cell lung cancer (NSCLC).

@US_FDA awarded accelerated approval to Keytruda in combo with Alimta and Carboplatin Click To Tweet

Merck Research Laboratories president Roger Perlmutter remarked, “The improved responses seen with the Keytruda plus [Alimta]/carboplatin regimen are significant, and highlight the importance of finding new approaches that address the unmet needs of patients with metastatic non-squamous [NSCLC].”

The approval was supported by safety and efficacy data from the KEYNOTE-021 study’s G cohort released in October last year, which showed that Keytruda plus Alimta and carboplatin was associated with an overall response rate of 55%, compared to 29% for Alimta and carboplatin alone.

In addition, Merck noted that the three-drug regimen reduced the risk of death or disease progression by 47%.

“It was a small trial but the results were really quite striking,” commented Roy Baynes, head of global clinical development for Merck Research Labs.

Merck shares closed Thursday off 0.6% at $63.61.

Steve’s Take:

Talk about snatching the gold ring for a drug that’s already on a roll.

Lung cancer is by far the largest oncology market and the approval significantly expands the number of patients available for Merck’s Keytruda therapy.

“This is the key game changer for Keytruda,” said Leerink Partners analyst Seamus Fernandez, adding that he expects physician acceptance to be “pretty robust,” according to Reuters.

The accelerated approval was based on data from a study of 123 previously untreated patients with metastatic non-squamous non-small cell lung cancer (NSCLC).

Merck may be asked to conduct another trial to confirm the clinical benefit of the combination.

Keytruda alone was already approved as an initial, or first-line, therapy for advanced NSCLC in patients whose cancer cells have a high level of the PD-L1 protein the drug targets. The combination allows for treatment regardless of level of PD-L1.

The original Keytruda first-line approval allowed for treatment of about 30% of NSCLC cases. The combination could be used on all patients with non-squamous NSCLC, which accounts for about 75% of lung-cancer cases.

You read that correctly: three quarters of lung-cancer patients are now squarely in Merck’s sights.

In the last 12 months Merck has gone from a runner up in the lucrative immune-oncology (IO) field to the potential leader. Wall Street analysts forecast that drugs like Keytruda, called checkpoint inhibitors, will reach sales of $30 billion by 2022, with most of the sales going to Merck and its biggest rival, Bristol-Myers Squibb Co.

Gains could occur at warp speed.

Keytruda sales should increase from $584 million in the first quarter of the year to $777 million in the second, $958 million in the third and $1.2 billion in the fourth. In 2018, analysts predict sales of Keytruda could approach $6 billion, according to Forbes.

A big part of the financial opportunity is due to the huge eligible market of newly diagnosed non-small cell lung cancer patients–analysts peg it at about 100,000 patients a year–and the excitement over the checkpoint inhibitors, which work by boosting the immune system and have resulted in some miraculous apparent cures. (In another lucky PR win, Keytruda is the drug that made former President Jimmy Carter’s cancer go into remission.)

Another big factor is the cost. A year of Keytruda plus chemotherapy will cost $257,000 annually, although Merck notes that most patients were only treated for 8 months, or $172,000, before the drugs failed them.

Merck’s biggest lucky break is that Bristol’s Opdivo failed in a study in non-small cell lung cancer last year, while Keytruda succeeded, confounding experts. Even Merck’s own executives think the result probably has more to do with who was treated than the medicines themselves.

When Bristol’s rival med gains FDA approval, analysts expect Keytruda and Opdivo to be at parity, with $10 billion each in 2022 sales. But those numbers are, in the words of Bernstein analyst Timothy Anderson, “fluid.”

Bottom Line:

Still, the question remains how long Merck will enjoy the lead it now has and how much that lead will boost sales.

Steve's Take: How long will @Merck enjoy the lead and how much will that boost sales? Click To Tweet

The most immediate threat is from a different combination approach; AstraZeneca PLC and Bristol-Myers Squibb Co. are trying to treat lung cancer with combos of two different IO drugs instead of just one with an older chemotherapy.

This creates various possible scenarios. While Merck will likely dominate the lung-cancer market for the rest of 2017, it may face as many as three competitors with potentially more compelling trial results as soon as the first half of 2018, says Bloomberg.

On the other hand, it’s also possible Merck could have the market to itself for a much longer stint than that. Or its combo may prove to be safer or more effective than its rivals.

What do the analysts think?

As of May 05, 2017, the consensus forecast among 23 polled investment analysts covering Merck advises that the company will Outperform the market. This has been the consensus since the sentiment of investment analysts improved way back on Mar 13, 2009. The previous consensus forecast advised investors to Hold their position.

Recommendations 1yr ago Latest
Buy 3 5
Outperform 6 9
Hold 14 8
Underperform 0 0
Sell 0 1

The 19 analysts offering 12-month price targets for Merck have a median target of $70.00, with a high estimate of $90.00 and a low estimate of $51.00. The median estimate represents an 8.34% increase from the last price of $64.61.


Merck has worked hard to bury its Vioxx catastrophe, which injured both its bottom line and reputation for years.

It has a megabrand in its portfolio with the IO asset Keytruda, though a patent settlement with Bristol-Myers and Ono Pharma Ltd. will pinch margins through 2023.

Seeking Alpha suggests that shares, trading near $65, are not attractive for new money seeking better than a bond substitute. Of course there are those who have become thoroughly captivated by Keytruda, or are extremely patient and risk-averse, in which case MRK could fit the bill.

The company’s pipeline, aside from Keytruda, has not been very productive, notes Seeking Alpha. It’s been subsisting on old products, and its sales from them are going to plummet.

Merck’s lack of a platform technology in biotech/IO is a dilemma for now. It’s also too big to be a credible takeover target.

But during this sliver of time where Keytruda keeps conquering all obstacles, it all trans­lates into bil­lions in rev­enue, with a con­sen­sus sales fore­cast of $3.6 bil­lion for 2017 rev­enue. And expanding.

This week Merck took one giant step onward and upward in NSCLC. If anyone has an accurate crystal ball, I’d like to know how long the jubilation will continue.

Steve Walker has no position in any stocks mentioned. MedContent Inc. has no position in any stocks mentioned. has a disclosure policy.

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