How Much Can Merck’s Share Price Grow If Keytruda Gets 10% Share Of Oncology Drug Market?
Merck’s (NYSE:MRK) Keytruda has been on a strong run with sales exceeding $7 billion in 2018. This can be attributed to its superior benefits in lung cancer, and various regulatory approvals for multiple indications. While the drug’s peak sales are touted to be as high as $16 billion, we forecast the sales to be around the $10 billion mark by 2026. This would represent roughly 5% share in the global oncology drug market in 2026. In this note we discuss the potential upside to Merck’s earnings and share price if Keytruda were to capture an incremental 5% share in the oncology drugs market by 2026. We have created an interactive dashboard analysis ~ What’s The Upside For Merck If Keytruda Garners An Additional 5% Share of The Oncology Drug Market By 2026? You can adjust various drivers to see the impact on the company’s earnings and price estimate, based on Keytruda sales. Also, here’s more Healthcare Data.
How Big Is The Global Oncology Drug Market?
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The global oncology drug market was valued at around $77 billion in 2018, and it is estimated to grow at a CAGR of 12.3% to $196 billion in 2026. Increased acceptance of immunotherapy will likely be the key growth driver in the coming years. Also, the mergers & acquisitions, and strategic partnerships in the overall industry are giving smaller companies better distribution networks. However, there will be certain disruptions in the growth, primarily from the loss of marketing exclusivity for some of the drugs, which will face generic competition. Some such drugs include Roche’s Rituxan, and Avastin.
How Much Can Keytruda Sales Grow?
Keytruda is the market leader in the immuno-oncology space, and it now has 15 approvals in the U.S. for 10 different types of tumors. The drug has superior benefits in treatment over its peers. In first-line non-squamous non-small cell lung cancer, Keytruda in a chemo combination showed 51% reduction in the risk of death, compared with chemo alone. The drug was initially approved for advanced Melanoma, but saw its usage expand to multiple other areas. In fact, in 2018 itself, Keytruda received 7 FDA approvals. Keytruda has a large addressable market because of its approval for lung cancer. The commercial opportunity is huge due to the 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. As such, the drug is expected to see strong growth in the coming years.
Given its benefits, expansion of the overall market, and if the drug is able to secure further approvals for other indications, it could garner an incremental 5% share of the global oncology drug market. Note that Keytruda is currently being tested under 9 programs in its phase three trials, including gastric, liver, and breast cancer indications. Any fresh approvals will further bolster the drug’s sales. This will result in its sales of roughly $20 billion, as compared to our base case estimate of $10 billion in sales in 2026.
What Will Be The Impact of Higher Keytruda Sales On Merck’s Earnings & Share Price?
If Keytruda manages to capture an additional 5% share in the oncology drug market, it will result in $1.00 incremental earnings on an adjusted basis. We use 27.5% adjusted net income margin, similar to that for overall Merck in calculating the EPS impact. We use a price to earnings multiple of 17x to arrive at a $17 impact on Merck’s share price, which offers roughly 20% upside to its current market price of $80. Our estimate of Merck’s earnings multiple is slightly higher than some of its peers, such as Bristol-Myers Squibb, given Merck’s visibility of Keytruda growth, larger late stage pipeline, and some other segments, including Animal Health, that could offer steady growth in the long run.
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