Merck Is Maintaining Its Relatively Steep Market Value Due To Keytruda Momentum

by Trefis Team
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Despite the setback that Merck (NYSE:MRK) faced in its Keynote-183 and Keynote-185 trials recently, its cancer drug Keytruda hasn’t lost its momentum this year. To add to that, Merck’s newly launched hepatitis C drug Zepatier and established HPV vaccine Gardasil have been gaining ground. We believe that these factors are sufficient to justify Merck’s relatively high market valuation.

The immuno-oncology drug Keytruda has so far been approved for advanced melanoma, advanced non-small cell lung cancer, hodgkin’s lymphoma, and head and neck squamous cell cancer, and more recently for the second-line treatment of urothelial malignancies. For lung cancer, in particular, the drug is expanding in first-line therapy. Keytruda’s sales in the first half of 2017 stood at $1.46 billion, and are expected to cross nearly $3.2 billion for the full year. This is significantly higher than what we expected at the beginning of 2017. Merck mentioned that IMS data suggests that Keytruda is the most prescribed drug in the first-line lung cancer treatment, where it is the only anti-PDL1 treatment in the market. Additionally, Merck’s second-line lung cancer treatment share has been relatively stable. We expect the drug’s sales to reach $5.5 billion by the end of our forecast period, accounting for nearly 15% of Merck’s total sales.

The performance of Zepatier and Gardasil is another success story, and the second-most important factor driving Merck’s valuation after Keytruda. Zepatier, which is a hepatitis C drug, has already raked in nearly $900 million in the first half of 2017, representing more than 5x growth over the same period last year. More than $500 million of this revenue came in the second quarter alone. Gardasil is also growing strongly in the U.S. and internationally – the U.S. market holds special interest as far as Gardasil is concerned, where the first dose coverage has been very strong.

While the positives have outweighed negatives for Merck this year, it is important to mention that its strong diabetes franchise – which includes Januvia and Janumet – is facing pricing pressure, which appears to be intensifying each year.

Our price estimate of $65 for Merck is slightly above the market.

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