After a solid run in 2018, supported by strong quarterly results and positive pipeline and regulatory updates, Merck & Co., Inc. (MRK - Free Report) looks well poised to continue the momentum in 2019.
Merck’s shares outperformed the industry in 2018, rising 35.8% compared with a 4.7% increase for the industry.
Strong Sales & Earnings Performance
Merck’s sales rose 5% in first nine months of 2018 while adjusted earnings per share rose almost 10%. Pharmaceutical segment sales rose 7% in nine months while that of the Animal Health unit rose 10%.
Strength in Keytruda, Bridion, Gardasil and Animal Health offset headwinds from loss of exclusivity for some products and competitive pressure for Zostavax and Zepatier. Keytruda continued its robust performance on strong demand.
Keytruda: A Key Growth Catalyst
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 several indications across eight different tumor types in the United States. It is continuously growing and gaining approval for new indications and markets globally. Sales are gaining particularly from strong momentum in the indication of first-line lung cancer as it is the only anti-PD-1 approved in the setting both as a monotherapy as well as combination therapy.
In fact, the Keytruda development program is also progressing rapidly. Merck is conducting numerous studies to evaluate Keytruda for more than 30 types of cancer in more than 850 studies, including more than 500 combination studies. Merck is collaborating with several companies including Amgen (AMGN - Free Report) , Incyte (INCY - Free Report) , Glaxo and Pfizer separately for the evaluation of Keytruda in combination with other regimens.
Other Pipeline/Regulatory Success
Key approvals for Merck in 2018 included that of Steglatro and its fixed-dose combinations for type II diabetes, two new HIV drugs — Pifeltro and Delstrigo — containing doravirine and Prevymis (letermovir) for cytomegalovirus (CVM) infection.
Merck also gained several label expansion approvals for Keytruda and another cancer drug Lynparza, which it markets in partnership with AstraZeneca (AZN - Free Report) . For Keytruda, a key FDA approval in October was the label expansion as a first-line treatment for metastatic squamous non-small cell lung cancer (NSCLC) — a difficult-to-treat lung cancer patient population — based on data from the phase III KEYNOTE-407 study.
Lynparza was also approved by the FDA in the first-line maintenance setting in December, becoming the first PARP inhibitor to be approved as a first-line maintenance therapy for BRCA-mutated advanced ovarian cancer. These new products and line extensions should bring in additional sales in 2019 and beyond.
Merck also announced positive data from several late-stage studies, mainly evaluating Keytruda for further line extensions.
Merck also signed a co-development deal with Japan’s Eisai Co., Ltd for the latter’s tyrosine kinase inhibitor, Lenvima. 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. In December, Merck announced plans to acquire privately held animal health technology provider Antelliq Group from BC Partners
What to Expect in 2019?
For Keytruda, several regulatory decisions for new indications in the United States as well as in Europe are due in 2019, which if approved can further boost sales. Key FDA decisions expected in the first half will be on regulatory filings for label expansion of Keytruda as an adjuvant therapy in patients with high-risk stage III melanoma and for patients with non-squamous or squamous lung cancer whose tumors express PD-L1 protein levels of 1 percent or greater (TPS of ≥1 percent).
Meanwhile, Keytruda, Bridion, Lynparza, Gardasil and Animal Health should continue the strong performance, driving sales and profits in 2019. This should make up for headwinds from loss of exclusivity (LOEs), softness in the diabetes franchise, and competitive pressure on Zepatier and Zostavax.
Merck will also continue to focus on cost-cutting initiatives, which should drive itsbottom line.
Merck currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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