Merck's Keytruda Lead Widens Over Competing Checkpoint Inhibitors
Executive Summary
CEO Ken Frazier had to argue the case that Merck has a diversified portfolio in yet another strong quarter for the PD-1 inhibitor Keytruda.
The sales lead for Merck & Co. Inc.'s PD-1 inhibitor Keytruda over Bristol-Myers Squibb Co.'s closely competing Opdivo and other checkpoint inhibitors widened in the fourth quarter, as the drug brought in almost $2.2bn, and the lead is expected to grow throughout the year.
As usual, the company was pressed by analysts during its earnings call on Feb. 1 about its reliance on Keytruda, need to diversify and prospects for M&A activity. But the company narrowly beat consensus and the Street seems largely satisfied with the course it’s on.
Compared with 2017, sales for Keytruda (pembrolizumab) were up 66% to almost $2.2bn in the fourth quarter and up 88% to about $7.2bn for all of 2018, the company reported. That compares with about $1.8bn in the fourth quarter and $6.7bn in yearly sales for Bristol's PD-1 inhibitor Opdivo (nivolumab). Despite flat performance from Q3, Opdivo’s Q4 total was up 33% year-over-year and far exceeds other non-Merck competitors (see chart).
Non-small cell lung cancer (NSCLC) always has been the most valuable indication and top prize for the family of PD-1/L1 checkpoint immunotherapies. Keytruda has demonstrated strong and consistent performance across trials in patients with nonsquamous and squamous histologies and was the first to get approved in first-line NSCLC, both as monotherapy and in combination with chemotherapy. (Also see "Merck's Keytruda Enjoys Clean Sweep In Lung Cancer, At Bristol's Expense" - Scrip, 17 Apr, 2018.)
In contrast, Bristol's PD-1 inhibitor Opdivo has had a number of setbacks, the most recent of which was the withdrawal of a US filing in first-line NSCLC for patients with high expression of the tumor mutation burden (TMB) biomarker. (Also see "Bristol Stuck In Waiting Game As Opdivo TMB Gamble Fails To Pay Off" - Scrip, 24 Jan, 2019.)
Roche's PD-L1 inhibitor Tecentriq (atezolizumab) became the second checkpoint inhibitor to win US FDA approval for first-line NSCLC in December, but the supporting data are viewed as weaker than the results supporting Keytruda. (Also see "Roche's Tecentriq Becomes Second In PD-1/L1 Family To Gain First-Line Lung Cancer Approval" - Scrip, 6 Dec, 2018.) Tecentriq has been slower to get off the ground than the first PD-1 drugs out of the gate. The company reported CHF248m ($248m) in sales for the fourth quarter, up 89% from CHF132m ($132m) in the same period of 2017. (Also see "New Products Soar And Old Stand Their Ground As Roche Heads Off Biosimilar Threat" - Scrip, 31 Jan, 2019.)
Lung Cancer Sales Drove Performance
The results for Keytruda in the fourth quarter extend the "unprecedented launch of this foundational therapy" and solidify Merck as the clear market leader, Chief Financial Officer Robert Davis said during the firm’s earnings call.
"Global growth was primarily driven by higher use in first-line non-small cell lung cancer, and utilization remains strong across the breadth of our indications, including melanoma, head and neck, bladder and MSI-high cancers," Davis said. Keytruda is now FDA-approved for 15 indications and 10 different tumor types overall in the US, plus it has a pan-tumor approval in MSI-high patients.
"We are seeing strong uptake in squamous non-small lung cancer in the US, where a good portion of newly diagnosed patients are now receiving either Keytruda as monotherapy or in combination with chemotherapy following the approval of KEYNOTE-407 in October," he added. (Also see "Merck's Stellar Keytruda Squamous Lung Cancer Data Refute Naysayers" - Scrip, 23 May, 2018.)
Ex-US, first-line NSCLC is the key driver of growth, mostly due to further uptake of a monotherapy indication for Keytruda in patients with high levels of expression of the PD-L1 biomarker. The combination of Keytruda with chemotherapy in first-line nonsquamous NSCLC is starting to be adopted in select markets in Europe, such as Germany. The company will be working through the reimbursement process in other major European markets throughout the year, Merck reported.
Analysts expect more upside in the NSCLC opportunity, especially from global markets. “We expect further growth with this indication internationally, where the drug's use in combination with chemotherapy is just starting and should more than double the addressable patient group in this area,” Morningstar analyst Damien Conover said in a Feb. 1 note.
And for now, analysts seem content that Merck’s overall performance is reliant on Keytruda. “The key to the MRK story remains continued strong commercial uptake of Keytruda,” Credit Suisse’s Vamil Divan said in a Feb. 1 note, which he pointed out came in slightly above consensus even though Keytruda estimates have “significantly increased as of late.” He also noted Merck’s edge will be contingent on delivering additional positive clinical data, such as the KEYNOTE-426 data in first-line renal cell carcinoma on Feb. 16 at the American Society of Clinical Oncology Genitourinary Cancers Symposium (ASCO-GU) in San Francisco.
Merck's Quarter Strong Overall
Overall, Merck's pharmaceuticals sales rose 6% to $9.8bn in the fourth quarter (see table below).
"The increase was driven primarily by growth in oncology and vaccines, partially offset by lower sales in virology and the ongoing impacts of the loss of market exclusivity for several products," the company said.
Products that have gone off patent include the cholesterol-lowering products Zetia (ezetimibe) and Vytorin (ezetimibe/simvastatin) and biosimilar competition has taken a bite out of sales for the TNF inhibitor Remicade (infliximab).
Merck also reported alliance revenue of $71m for Lenvima (lenvatinib), partnered with Eisai Co. Ltd., and $62m for the PARP inhibitor Lynparza (olaparib), partnered with AstraZeneca PLC. CEO Kenneth Frazier told the call that the company's leadership in oncology, though grounded by Keytruda, is bolstered by growth prospects for both products.
Davis said that in the US, Lynparza leads the PARP inhibitor class across all tumor types with more than 50% total patient share and the company is excited by the earlier-than-expected US approval in late 2018 for first-line ovarian cancer with BRCA mutations. (Also see "First-Line Ovarian Cancer Approval Solidifies Lead For AstraZeneca's Lynparza " - Scrip, 19 Dec, 2018.)
Lenvima has performed well in liver cancer following recent launches in the US, Europe and, more recently, China, the exec said. (Also see "First In 10 Years, But Lenvima's First-Line Liver Label Could Be Challenged Soon" - Scrip, 17 Aug, 2018.)
Sales for the HPV vaccine Gardasil were up 32% to $835m in the fourth quarter compared with 2017, but the company reported this was offset by a significant decrease in sales for its shingles vaccine Zostavax. Zostavax has suffered from competition from GlaxoSmithKline PLC's Shingrix, which has emerged as the standard of care in the US and Europe. (Also see "Shingrix Seen Replacing Zostavax In EU & US as Shingles Standard Of Care" - Scrip, 31 Jan, 2018.)
Gardasil is "not only driving meaningful growth for the company after a decade on the market, but is also instilling optimism around the world that this vaccine could help prevent and maybe eliminate certain HPV-related cancers," Frazier said.
Morningstar’s Conover noted that as with Keytruda, “Gardasil ran ahead of our projections, and we expect these products to post continued gains driven by expanding indications as well as further entrenchment in international markets.” He pointed out the recent launch of Gardasil in China adds 100m women to the pool of eligible patients.
Pursuing Deals, But Disruptive M&A Off The Table
Merck continually faces questions over whether it is too reliant on Keytruda and why it does not divest its animal health business, but Frazier said that the company is on the right track.
"We are confident in our broad portfolio of market-leading products and our diversified, high-potential pipeline, which includes significant innovations in oncology, vaccines and other specialty and hospital care, along with a robust industry-leading animal health business. In fact, Merck has one of the broadest and most promising pipelines we've had over the past two decades," Frazier said.
When queried by an analyst, Frazier asserted that the company's longer-term revenue growth prospects are underappreciated, "in large part, because people don't see the pipeline the way we do." The company sees tremendous future growth potential not only in Keytruda, Lynparza and Lenvima, but also has a "formidable internal pipeline of assets in oncology, with over 20 unique mechanisms," the CEO said.
Beyond Gardasil there are opportunities in next-generation pneumococal, respiratory syncytial virus (RSV), cytomegalovirus (CMV) and dengue vaccines, as well as other areas, he said.
Furthermore, he pointed out that Merck just announced positive Phase III data for its antibiotic Zerbaxa (ceftolazone/tazobactam) for hospital-acquired ventilator-acquired pneumonia. (Also see "Merck Looks To Add Pneumonia To Zerbaxa Label; Market Value Not Clear" - Scrip, 12 Sep, 2018.) The exec maintained this could be a "sizable opportunity" that will fit with the company's "leading portfolio of hospital products," including the anesthesia-reversal drug Bridion (sugammadex).
The exec also flagged vericiguat, in Phase III development for heart failure in partnership with Bayer AG, and novel assets for HIV and neuroscience.
Merck was pressed on why its V114 15-valent pneumococcal conjugate vaccine received breakthrough designation from the FDA in children but not adults, as announced Jan. 30. But Roger Perlmutter, president of Merck Research Laboratories, only responded that the company has very strong data for adults in addition to children and that eight Phase III studies will read out this year or next year.
In response to a question about M&A activity, Frazier reiterated previous statements that the company wants to focus on deals that will have minimum disruption to its ongoing scientific efforts and that the company has not been pursing large mega-mergers.
But with Keytruda leading the pack in immuno-oncology, at least some analysts appear content with Merck’s position. While generic competition to cardiovascular drugs Zetia and Vytorin along with branded competition to hepatitis C drug combination Zepatier (elbasvir/grazoprevir) hurt growth in the quarter, Morningstar still expects "the headwinds from these pressures to decline in 2019."
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2018 Sales Highlights: Merck's Fourth Quarter And Full-Year Results |
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Product/category |
4Q Sales |
Full Year Sales |
|
Keytruda |
$2.2bn (+66%) |
$7.2bn (+88%) |
|
Januvia/Janumet |
$1.5bn (-4%) |
$5.9bn (flat) |
|
Gardasil franchise |
$835m (+32%) |
$3.1bn (+37%) |
|
Varivax/Pneumovax |
$322m (+22%) |
$1.8bn (+7%) |
|
Zetia/Vytorin |
$245bn (-52%) |
$1.4bn (-35%) |
|
Animal health |
$1bn (+6%) |
$4.2bn (+9%) |
|
Total pharmaceutical sales |
$9.8bn (+6%) |
$37.7bn (+6%) |
|
Total sales |
$11bn (+5%) |
$42.3bn (+5%) |