Keytruda's 'wall of data' bodes well for Merck's future growth: exec

Merck upped its 2019 guidance on Q1 sales and EPS beats. (Merck)

Merck & Co.’s business these days has circled around its immuno-oncology star Keytruda, and the first quarter was no exception. But executives say they're not worried their PD-1 blockbuster will lose momentum—or that their pipeline will fail to pitch in down the line.

Thanks to the “wall of data” Keytruda boasts in numerous indications, the drug is well set up to keep propelling Merck forward, execs said during the company's first-quarter earnings call.

Keytruda ginned up $2.27 billion in sales for the period, an impressive 60% leap at constant exchange rates. That means Keytruda is now over a fifth of Merck's business, a growing share that has worried analysts when compared to its less interesting pipeline. 

“[Merck] continues to claim its pipeline is as good as its ever been, which is a disconnect relative to investor perception—in the eyes of many (including us) its late-stage pipeline is thin relative to spending roughly $8 billion a year on R&D,” Wolfe Research analyst Tim Anderson wrote in a Tuesday note to clients.

That said, Anderson agreed with executives on a Tuesday conference call that Keytruda will continue to deliver on its growth promises, even against a backdrop of high sales estimates. With additional sources of revenue from new indications and launches in new countries, Keytruda alone “is enough to carry the story,” he said—at least for now. 

“Yes, it creates single product concentration risk—and this may be a concern in due time—but with [its loss of exclusivity] not occurring for a decade yet, it’s too early to be overly concerned,” he said.

Consider Keytruda's launch in squamous non-small cell lung cancer. The drug has penetrated the segment rapidly, grabbing 70% market share for new patients, Chief Commercial Officer Frank Clybun said on the Q1 call. And in the nonsquamous form of the disease, it has captured almost all of the first-line patients with high PD-L1 expression levels, he said.

“We still have opportunity for growth in the PD-L1-negative patient population, and that’s the focus for the commercial team,” he said.

Keytruda recently gained a new FDA nod as a first-line monotherapy for PD-L1-low patients who aren't suitable for surgery or chemo. It’s a smaller subset of stage III patients, Clyburn acknowledged. But it offers an option for all PD-L1-positive patients, especially those looking at solo Keytruda therapy because other health problems limit their options, he argued. It “helps to round out our overall lung story,” he said.

RELATED: Merck heaps early pressure on Bristol-Myers' Opdivo with Keytruda's kidney cancer debut

Lung cancer currently makes up about 65% of Keytruda sales in the U.S. and 70% outside the U.S., according to Clyburn. And outside of lung cancer, Keytruda has continued its land grab in other indications. In what Clyburn called a “very significant opportunity for future growth,” it recently won FDA approval in combination with Pfizer’s Inlyta for patients with previously untreated kidney cancer.

That puts Keytruda up against Bristol-Myers Squibb’s Opdivo-Yervoy combo. And based on data from the Keynote-426 trial, Credit Suisse analyst Vamil Divan has said Keytruda could quickly snatch up market share because the Merck drug is the only one that also showed a significant cut in the risk of death in the PD-L1-negative group.

Next up, Keytruda has an FDA priority review in first-line head and neck cancer, with a decision expected by June 10, and is waiting on a decision as a third-line treatment in advanced small cell lung cancer. And more could well be on their way: Merck has 900 clinical trials studying Keytruda in various settings, according to a recent securities filing.

Merck is also fanning some growth flames in China, where its first-quarter sales skyrocketed 67% to $725 million. The country was credited once again with driving sales increases for HPV vaccines Gardasil and Gardasil 9, Keytruda’s second-best-selling franchise. Its $838 million haul for the quarter represented 31% year-over-year growth and beat consensus by about $25 million.

RELATED: Keytruda nabs key lung cancer nod in China. But are blockbuster sales really attainable?

But how much can Keytruda do in China? After its first approval in the country—in previously treated metastatic melanoma—Keytruda in March won first-line NSCLC approval alongside Alimta and chemo. That nod made Keytruda the first immuno-oncology agent for first-line NSCLC in China.

The Merck drug may be winning the NSCLC field in the U.S., but analysts expressed some doubts about its prospects in China. Hong Kong-based analyst Tony Ren, for one, previously argued that China’s lung cancer market for PD-1/L1 agents is small, thanks to a high prevalence of EGFR-mutated cancers—a field where those IO drugs aren't used. Plus, Keytruda faces domestically made rivals offered at discounts as high as about 70%.

Clyburn called China a “very significant opportunity” for Keytruda but stopped short of providing any specific projections.

“We believe oncology is really a data-driven area, given the severity of the disease,” he said, adding that the drug's “wall of data” is going to be important in China just as it is elsewhere.

“China will definitely be a competitive market,” he conceded. “But our first mover advantage with the first-line lung cancer approval sets us up very well.” And because no Chinese competitors have turned up comparable efficacy results in first-line lung cancer, “we believe our clinical execution and commercial execution, and our significant amount of data, will help us to compete in China as well as in any other market around the world,” the commercial chief said.

Overall, Merck’s sales in Q1 totaled $10.82 billion, up 11% at constant exchange rates and above analyst expectations of $10.47 billion. But Credit Suisse’s Divan noted that much of the beat in the quarter was driven by “less strategically important products” such as hepatitis C drug Zepatier and cholesterol drugs Vytorin and Zetia.

Earnings per share of $1.22 did come in well above consensus. And on the positive numbers, Merck dialed up both its sales and EPS guidance for 2019.