Merck & Co. surprised investors and analysts Friday with news that it had pulled its application for a new Keytruda combo approval in Europe. And they haven’t taken it well.
Monday, Barclays analyst Geoff Meacham downgraded the stock to equal weight based on “diminished upside potential” for the immuno-oncology standout, now that Merck has given up on an EU approval for the Keytruda-plus-chemo combo in first-line non-small cell lung cancer.
Meanwhile, Leerink Partners’ Seamus Fernandez and Credit Suisse’s Vamil Divan each lowered their price targets. Bernstein’s Tim Anderson, for his part, said the “new news may cause us to revisit our EU Keytruda forecasts.”
Aside from the fact that the abandoned indication busts sales projections, it’s also “admittedly ... an awkward development,” Anderson wrote in a Friday note to clients. Merck, waiting for EU regulatory authorities to announce the move next month, didn’t mention the change on its Q3 earnings call Friday. But after analyst questions on the topic, the company “felt compelled” to disclose the news after market close, Anderson noted.
The reason for jumping ship on the application? The European Medicines Agency’s Committee for Medicinal Products for Human Use (CHMP) likely wouldn’t have recommended the combo without data from an ongoing phase 3 trial, and thanks to a recent endpoint tweak to focus on overall survival, that data won’t be available until early 2019, Anderson wrote.
As Evercore ISI analyst Umer Raffat wrote his own note to clients, skeptics have taken the application withdrawal—as well as the data delay and the endpoint swap—as a sign that “there could be some issue” with the phase 3 study. But Raffat doesn’t see it that way.
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“I am seeing some several pieces of evidence that seem to dispel these concerns,” he said, suggesting that “Perhaps its increasingly clear to Merck that the No. 1 thing they need for commercial uptake is [overall survival] data.”
Keytruda won its chemo-combo approval in the U.S. earlier this year based on data from a phase 2 trial. The FDA has awarded a series of cancer-drug approvals before phase 3 data are in as part of an effort to get new meds to market faster. European officials apparently are less eager to rely on earlier-stage trials for their approvals.
Meanwhile, the way Meacham sees it, Merck’s competitors likely won’t “leapfrog” it in first-line NSCLC—an all-important market in the immuno-oncology arena. But they could have data out later this year or early next that “could further weigh on sentiment,” he wrote.
Bristol-Myers Squibb is testing its rival PD-1 medication, Opdivo, alongside its CTLA4 contender Yervoy in that front-line setting, while Roche is working on a chemo combo similar to Merck’s with its checkpoint med Tecentriq.