Merck's quarterly Keytruda sales soar past $3B, but analysts fret over future growth

Merck’s immuno-oncology blockbuster Keytruda was mentioned more than a dozen times in the company’s third-quarter earnings announcement, and not just because sales of the drug soared 62% to $3.1 billion.

Keytruda is also a key player in Merck’s short- and long-term pipeline—a strategy that hasn’t always been popular with Wall Street analysts, despite the product’s continued success. So even as Merck’s top executives emphasized the continued strong performance of Keytruda in multiple ongoing clinical trials during the earnings discussion, analysts pounded them for details about how the drug will outperform the growing competition, particularly in lung and breast cancer.

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Merck’s ability to establish itself in the lung cancer market has been a big part of the drug's success. Keytruda was the first PD-1/PD-L1 inhibitor to be approved by the FDA for previously untreated non-small cell lung cancer (NSCLC), and it also has a nod in combination with chemotherapy. At this year’s American Society of Clinical Oncology (ASCO) annual meeting, Merck drew attention for its data showing that 23% of previously untreated NSCLC patients taking Keytruda were still alive after five years.

Still, during a conference call after the third-quarter earnings release, analysts demanded that Roger Perlmutter, M.D., Ph.D., Merck’s VP of research, handicap Keytruda’s growth prospects going forward in lung cancer. Could the drug prove equally popular, one wondered, in small-cell lung cancer (SCLC)? What about the competition in NSCLC?

The FDA approved Keytruda as a second-line treatment for SCLC in June, and Perlmutter said Merck is “encouraged” about the reception so far. But NSCLC is the bigger opportunity, he pointed out. And Merck could soon be facing some competition there. Bristol-Myers Squibb’s Yervoy-Opdivo combo, for one, helped patients live longer than chemo did in a study presented at the recent European Society for Medical Oncology Congress (ESMO).

During the earnings conference call, one analyst challenged Perlmutter to think like the physician he is and comment on when he would prefer to prescribe Opdivo plus Yervoy as a first-line treatment to patients with NSCLC instead of Keytruda with chemo.

Looking at the data, Perlmutter responded, “it’s difficult to identify the patient population in which a combination of Opdivo and Yervoy would be the right choice, but I think that the argument that has been made by [BMS] is that they’re looking at individuals in whom there is less PD-L1 expression.” He added that Merck’s data in PD-L1-negative patients who receive the Keytruda-chemo combo is “really quite strong, and the safety profile…is also very good. So I’m just not sure where I see a special niche” for BMS’ combo. Future data releases, particularly from a combination of Yervoy and Keytruda, will help to provide further insights on the role of combination therapies in lung cancer going forward.

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Analysts also asked Perlmutter to provide details about Keytruda’s prospects in triple-negative breast cancer (TNBC) in light of the product’s disappointing performance as a monotherapy in a phase 3 trial earlier this year. During ESMO, the company presented data showing that in patients with high levels of PD-L1, the drug did cut the risk of death by 22%, as opposed to just 3% in all comers, when compared with chemo.

As to whether Keytruda has a future in triple-negative breast cancer, Perlmutter said Merck is still pulling together the data it needs to determine the product’s potential role there. The overall trend in complete responses and event-free survival is encouraging, and “augurs well for what the subsequent outcome measures will look like,” Perlmutter said. “Over time, that will really have a big effect on how triple-negative breast cancer is treated” in some patients.

Keytruda’s market dominance drove Merck’s total sales up 15% to $12.4 billion and non-GAAP earnings-per-share up 27% to $1.51 for the quarter. That blew past analysts’ estimates of $11.6 billion in sales and EPS of $1.24. And it prompted Merck to raise its EPS forecast for 2019 to $5.12 to $5.17, beating the consensus estimate of $4.92 per share, according to Refinitiv.

Still, Merck’s outsized reliance on Keytruda was reflected in the earnings call itself, which as one analyst pointed out was almost entirely focused on that one product.

“I do think it’s important that people continue to realize that while Keytruda is truly a foundational product, we are a lot more than just Keytruda,” Robert Davis, Merck’s chief financial officer, said. He pointed out that the company’s oncology portfolio includes molecules addressing over 20 mechanisms of action. Merck’s vaccine sales grew 18% in the quarter, he added. “We have a lot internally to be excited about,” he said.

Perhaps, but for now, Wall Street’s excitement remains tied to Merck’s immuno-oncology powerhouse.