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Merck (MRK) Stock Up So Far This Year on Keytruda Strength

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Merck & Co., Inc. (MRK - Free Report) shares have performed well this year so far in contrast to its industry’s performance. Merck belongs to the Zacks Large Cap Pharmaceuticals industry, which is a 14-stock group comprising some of the largest drugmakers of the world.

The Zacks Large Cap Pharmaceuticals industry has underperformed the S&P 500 as well the Zacks Medical Sector. While the stocks in this industry have collectively declined 4.4%, the Zacks S&P 500 Composite and the Zacks Medical Sector have risen 3.7% and 0.1% year to date, respectively.

 

However, Merck’s shares have risen 8.4% this year so far against the industry’s decline of 4.4%.

 

Also, earnings estimates for 2018 rose 1.2% while that for 2019 rose 4.1% over the past 60 days.

What’s Behind the Rally?

A significant part of Merck’s outperformance this year was driven by strong performance and positive regulatory updates related to its PD-1 inhibitor, Keytruda. In a very short span of time, Keytruda has become Merck’s largest product. It is already approved for use in 10 different settings involving seven different tumor types. This year, it has already gained approval for two new indications. These include third-line treatment of adult as well as pediatric patients with primary mediastinal B-cell lymphoma (PMBCL), a type of non-Hodgkin lymphoma and second-line treatment of recurrent or metastatic cervical cancer. These label expansion approvals should drive sales of Keytruda in the future quarters.

The treatment generated sales of $1.5 billion in first-quarter 2018, up 12.9% sequentially and 151% year over year. This upside was driven by the global launch of indications, which further boosted demand.  Keytruda sales are gaining, particularly from strong momentum in the first-line lung cancer indication. In fact, Keytruda is the only anti-PD-1 approved in the first-line setting for certain lung cancer patients both as a monotherapy as well as a combination therapy with Eli Lilly’s (LLY - Free Report) cancer drug, Alimta (pemetrexed) and carboplatin (pem/carbo).

At the recently concluded annual meeting of the American Society of Clinical Oncology, this PD-L1 inhibitor stole the limelight with encouraging data from multiple clinical studies. The data presentation from Merck that garnered the most attention from physicians and investors was from a second interim analysis of a pivotal lung cancer study on Keytruda — phase III KEYNOTE-407 study.

Keytruda is also being studied for more than 30 types of cancer in more than 700 studies, including in excess of 400 combination studies. Merck is collaborating with several companies including Amgen (AMGN - Free Report) , Incyte, Glaxo and Pfizer separately for the evaluation of Keytruda in combination with other regimens.

Other than that, this year Merck and partner AstraZeneca (AZN - Free Report) gained approval in Europe and Japan for its PARP inhibitor Lynparza for advanced ovarian cancer and in the United States in metastatic breast cancer. Merck also announced positive data from several late-stage studies, mainly evaluating Keytruda for further line extensions. Merck also signed a deal with Japan’s Eisai Co., Ltd to jointly develop and commercialize the latter’s tyrosine kinase inhibitor, Lenvima, both as a monotherapy as well as in combination with Keytruda, for several types of cancer. It also agreed to buy Viralytics Limited, an Australian pharmaceutical company that develops oncolytic immunotherapies for a range of cancers,which should strengthen its oncology portfolio.

Conclusion

Merck, which carries a Zacks Rank #3 (Hold), has its share of challenges in the form of generic competition for several drugs and pricing pressure and rising competitive pressure on the diabetes franchise and on products like Isentress (HIV), Zepatier (HCV) and Zostavax (vaccine)

Nonetheless, going forward, new products like Keytruda, Lynparza, and Bridion should continue to contribute meaningfully to the top line in 2018. Merck’s Animal Health unit is also strong and remains a core growth driver for the company. Meanwhile, Merck will also continue to focus on cost-cutting initiatives, which should drive its bottom line.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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