Merck & ASCO: It Is All About Keytruda (Pembrolizumab)

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Merck (NYSE:MRK) is presenting plenty of new data on cancer drugs trials in the upcoming American Society of Clinical Oncology (ASCO) conference. From what we gather, it is focusing exclusively on immuno-oncology and more specifically, its anti-PDL1 drug Keytruda (pembrolizumab). The medicine has already been approved for advanced melanoma and the next step could be lung cancer. But that’s not all.  The company is going to present new data for 10 different cancer types which suggests promising future for Keytruda. We have previously stated that the drug holds potential for lifting Merck’s value by at least 10%, provided it gets few FDA approvals.

Our price estimate for Merck stands at $60.57, which is roughly in-line with the market.

See our complete analysis for Merck

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Merck’s ASCO Plan Suggests Focus On Most Common Cancer Types With Highest Mortalities

Merck will show data regarding efficacy and safety of Keytruda for several different types of cancer, including head and neck cancer, melanoma, lung cancer, colorectal cancer, advanced gastric cancer, advanced esophageal carcinoma, advanced urothelial cancer and PDL1-positive advanced ovarian cancer. Out of these, lung cancer, colorectal cancer and esophageal cancer are some of the deadliest cancer types with highest mortality rates. There are two ways for Merck to extend its immuno-oncology advantage in the market. First, it can target the most common cancer types such as lung cancer, colorectal cancer, melanoma, breast cancer, prostate cancer, etc. Second, it can focus on deadliest ones and address the unmet need.  As it turns out, the most common cancers also result in highest number of deaths which suggests that Merck’s focus on addressing some of these cancer types bodes well in terms of future cash flow growth.

Keytruda Has Potential To Move Merck’s Stock

We estimate that Keytruda could earn as much as $5 billion in annual revenues if it penetrates 10% of the advanced melanoma patient pool in the U.S. and Europe. The drug costs around $12,500 per month for treatment of advanced melanoma which accounts for most of the deaths from skin cancer cases. Assuming that 20% of all melanoma cases are advanced, the actual addressable patient pool for Keytruda would be close to 340,000 given our estimated total patient pool of 1.7 million in the U.S. and Europe (read How Significant Can Keytruda Be For Merck?).

We still take a conservative view in our pricing model, owing to expected increase in competition in immuno-oncology segment, and assume Keytruda will have slightly less than $3 billion in revenues by 2021. However, the drug is under trial for multiple additional indications as mentioned above. Out of these, NSLC (non-small cell lung cancer) has received breakthrough therapy designation from the FDA. If the drug gets approval for two to three of these indications in the next few years, its revenues could skyrocket. In such a case, there is a good chance of adding incremental revenues of $3-4 billion over what we currently forecast. This will add 10% to the company’s value.

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