Merck shuns big M&A, growth concerns as Keytruda keeps steamrolling

Sales of Keytruda reached $2.63 billion in the second quarter. (Merck).

Merck in the past has faced investor criticism that it’s a one-trick pony with Keytruda. But with a trick that good, some analysts say, why worry?

Driven largely by the drug’s dominance in previously untreated lung cancer, Keytruda sales jumped to $2.63 billion in the second quarter, easily passing Wall Street expectations of $2.52 billion and leaping by 63% globally.

In the U.S., that leap was even greater, with the immuno-oncology standout posting 73% growth on the period.

Detractors may point out that Merck's reliance on Keytruda is only increasing, "and this may be an appropriate concern in due time,” Wolfe Research analyst Tim Anderson wrote in a note to clients. But with Keytruda boasting another decade of patent protection, “it’s too early to be overly concerned,” he wrote.

Despite five years on the market already, Keytruda “is still on the front end of its life cycle curve,” Anderson wrote—a point execs made clear on Tuesday’s quarterly conference call.

For one, they highlighted positive new top-line results for the checkpoint star in neoadjuvant triple negative breast cancer. The setting—in patients ahead of surgery—has an “increasingly important role in breast cancer,” R&D chief Roger Perlmutter told investors, thanks to the potential for less aggressive surgery and major improvements in long-term outcomes.

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Until now, Keytruda and its rivals have been used largely in the metastatic setting, but earlier use will provide “the next key battleground,” Credit Suisse analyst Vamil Divan has said. He and his team estimate the market for PD-1/PD-L1 meds could hit $29 billion in the adjuvant setting alone.

Merck’s leaders also pointed to combination studies with Lynparza and Lenvima, products the company bought into with AstraZeneca and Eisai collaboration deals respectively. There’s an “awful lot going on” in combo studies with both agents, Perlmutter said.

And those drugs had big quarters in their own right, too. Sales of both have more than doubled since last year’s second quarter, with Lynparza’s sales surging to $111 million from $44 million and Lenvima sales rocketing to $97 million from $35 million.

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With all of that in mind—as well as a big performance from the vaccines unit, driven by HPV shot Gardasil—Merck isn’t interested in the large deals it’s watched its peers chase, CEO Ken Frazier said on the call.

“Each one of those companies is evaluating their own prospects for growth. We feel very, very confident in our growth prospects going forward,” he said, adding that, “We are not interested in a larger merger that we feel can be disruptive to the company.”

Overall, with sales of $11.8 billion and earnings per share of $1.30, the New Jersey drugmaker beat revenue and profit forecasts in a performance that mirrored its successful Q1. It now expects to generate sales between $45.2 billion and $46.2 billion on the year, it said.