How Merck & Co. (MRK) Could Have Lucked Into a $10 Billion Drug

The stars have lined up for Merck (MRK) as analysts suggest its checkpoint inhibitor Keytruda could yield $6 billion in revenue in 2018 and could grow to $10 billion by 2022.

That prediction, first reported in Forbes, is based off the strides the drug has made in the market due to its efficacy, as well as stumbles by competing PD-1 inhibitors. On Thursday, the U.S. Food and Drug Administration approved Keytruda in combination with Eli Lilly (LLY)’s Alimta as a first-line treatment of metastatic nonsquamous non-small cell lung cancer (NSCLC), irrespective of PD-L1 expression. The latest U.S. Food and Drug Administration (FDA) approval is part of a long string of regulatory successes the drug has shown as it has received regulatory approval for numerous cancer indications including lung, head and neck cancer, melanoma and Hodgkin lymphoma.

Merck and Keytruda also benefitted from a Phase III failure of rival drugmaker Genentech (RHHBY)’s anti-PD-1 therapy, Tecentriq. Earlier this week Genentech, a member of the Roche Group, said Tecentriq failed a Phase III study in patients with bladder cancer. Tecentriq, a monoclonal antibody that binds with PD-L1, is already approved for certain types of bladder and urinary tract cancer called urothelial carcinoma. The results took Genentech by surprise.

Another failure that certainly has benefitted Keytruda’s market share is the trouble surrounding Bristol-Myers Squibb (BMY)’s Opdivo. In December 2014, Opdivo was approved by the FDA for patients with advanced melanoma who no longer respond to other drugs, or cannot be treated via surgery. In March 2015, it was approved for treatment of patients with metastatic squamous non-small cell lung cancer (NSCLC) with progression on or after platinum-based chemotherapy. But in August 2016, Opdivo failed to meet its endpoints in a Phase III trial as a monotherapy for a "broad patient population" in patients with previously untreated advanced non-small cell lung cancer, which threw open the door for Keytruda.

Writing in Forbes, Matthew Herper called the Opdivo stumble Merck’s "biggest stroke of luck."

"Even Merck’s own executives think the result probably has more to do with who was treated than the medicines themselves. Merck had restricted its drug to patients whose tumors expressed a great deal of a protein called PD-L1; Bristol had been less restrictive," Herper said.

But, as he quickly pointed out, that stumble opened the door to Keytruda’s most recent indication approval.

"The result is that Merck is now approved by the Food and Drug Administration to market its drug for first-line non-small cell lung cancer. Bristol isn’t," he said.

While Opdivo’s failure allowed Keytruda to take a big chunk of the checkpoint inhibitor market, the BMS drug is still a contender. By 2022, Herper said analysts predict both drugs could generate about $10 billion in annual revenue.

Now, Herper said, the question regarding checkpoint inhibitors comes down to whether the drugs work better in combination with chemotherapy or an immuno-oncology drug. AstraZeneca (AZN) and BMS are conducting trials of checkpoint inhibitors with the immuno-oncology drugs and trial results are expected later this year. What those may reveal could take away from the fortunes that Merck is experiencing with Keytruda.

"There’s enough nobody understands right now that picking a winner feels a lot like playing the horses. That said, the rewards for both companies look as if they could be huge," Herper said.