Merck poised for early Keytruda launch in lung cancer, analyst says

New Year, new expectations for Merck ($MRK). Bernstein Research analyst Tim Anderson predicts an earlier-than-expected expansion for Keytruda, the company's newly approved cancer immunotherapy. And that would mean hundreds of millions in additional 2015 sales, plus an accelerated boost to revenue and earnings for years to come.

Already launched for melanoma, the drug could win an FDA nod later this year in non-small cell lung cancer, if Anderson's hunch is correct. Keytruda won the agency's breakthrough therapy designation for NSCLC in October, a sign that Merck has data that's ahead of the pack, the analyst said in a Monday note. Plus, Anderson's sources are saying that an actual filing by the end of June--and launch in the second half of 2015--seems "not only possible but probable."

One hint of Merck's plans lies in a study dubbed Keystone-001, which looked at Keytruda in both melanoma and NSCLC. The company calls it a Phase I trial--which would seem to indicate that it's not ready for prime FDA time--but the study involves about 1,000 patients, much more than your usual trial at that stage. "We have long felt this was part of a stealth strategy to close the gap between Merck and its rivals in the [immuno-oncology] category," Anderson writes, predicting that the trial "will yield a fileable cohort of patients" during the first half of the year.

Another key point about Keytruda in NSCLC is this: Bristol-Myers Squibb ($BMY) is likely to win lung cancer approval for its rival drug, Opdivo, before Keytruda does, Anderson says. But that first-to-market status may not deliver as much for Bristol-Myers as one might think. Merck's drug is in line for a broad approval, as a second-line therapy in both squamous and non-squamous NSCLC, while Opdivo is most likely looking at a third-line nod in the squamous population only, at least at first. Non-squamous disease accounts for about 75% of NSCLC cases, the analyst points out, and in the past, only about 25% to 30% of patients who fail on second-line therapy move on to third-line options.

So, Anderson is putting his rating where his mouth is, bumping Merck up to "outperform" on the strength of this Keytruda prediction. He's hiking his sales forecast for the drug to about $900 million in 2015, compared with a consensus estimate of $410 million, and boosting his 2020 sales expectations to $3.7 billion, compared with a consensus $3.1 billion.

Potential spoilers for Keytruda? If a couple of Bristol-Myers' ongoing trials stop early, Opdivo could win second-line approval in both types of NSCLC. That would put the two drugs on more even footing. And then there's Roche ($RHHBY), which might actually file its PD-L1 drug for approval in NSCLC this year, too--using a strategy similar to Merck's "stealth" approach, Anderson figures.

However the approvals shake out, immuno-oncology is looking to be one of the biggest pharma stories of the year. Keytruda and Opdivo are up for a head-to-head fight in melanoma already, and Roche and AstraZeneca ($AZN) are working to advance their own entries.

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