Merck’s New Filing For Keytruda Is A Meaningful Move

We previously established that Keytruda (pembrolizumab) is a critical product for Merck (NYSE:MRK). The drug signifies the company’s advancement in immuno-oncology which offers a range of opportunities in a variety of cancers and harnesses the body’s immune system to attack cancer cells. Most of the cancer research, at least in terms of dollars, appears to be focused on this area. Merck’s Keytruda was previously approved for melanoma but, earlier this month, the FDA granted priority review for the drug for non-small cell lung cancer (NSCLC) ^[1] This means that in the next 8-10 months, Keytruda can significantly expand its target market. The commercial opportunity can increase significantly due to larger population of potential patients. Lung cancer is one of the most prevalent cancer types in the world, both in terms of incidence and mortality.

Our price estimate for Merck stands at $60.57, which is slightly above the market.

See our complete analysis for Merck

We estimate that Keytruda could earn as much as $5 billion if the uptake among healthcare providers is good. However, we keep our forecasts conservative owing to the expected increase in competition. We already factor in the NSCLC approval but if the drug gets approval for two to three additional key 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. Merck recently presented some early stage clinical trial data for Keytruda for several cancers at ASCO.  There are currently more than 100 ongoing clinical studies across 30 different tumor types.

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1. FDA Grants Priority Review for Merck’s Keytruda as Non-Small-Cell Lung Cancer Treatment, The Wall Street Journal,  Jun 1 2015 [↩]