Favorable News On Keytruda Drives Piper Jaffray's Upgrade Of Merck

After the close on Wednesday, Merck & Co., Inc. MRK announced that the FDA had accepted its filing for Keytruda based on the KEYNOTE 021G data presented by the company at ESMO comparing the drug candidate plus chemo to chemo alone in 1L lung cancer.

Piper Jaffray’s Richard J. Purkiss upgraded the rating on the company from Neutral to Overweight, while raising the price target from $63 to $72.

Keytruda Approval Expected

“As the study had randomized only 123 patients, few expected FDA to accept a filing. However, we now expect FDA will conditionally approve the use of Keytruda + chemo in patients with lung tumors <50 percent PD-L1 by May 10th 2017,” the analyst mentioned.

This means that the adoption of Keytruda in 1L lung cancer would be brought meaningfully forward, to the “initial detriment of other I/O contenders”.

However, Purkiss noted that visibility into 1L lung cancer continued to be low beyond 2017, given that Phase 3 I/O studies were still expected to provide data in 2017/18.

Market Share

The analyst believes the approval of Keytruda in 1L lung cancer for patients with tumors that express less than 50 percent PD-L1 opens up a new opportunity for Merck of a little less than 100,000 patients in the United States.

Assuming I/O penetration of about 65 percent, Purkiss expects Merck to take 90 percent share of the market in 2017, falling to 45 percent in 2018 and 35 percent in 2019. This suggests sales of $6.4 billion in 2017, $8.5 billion in 2018 and $7.7 billion in 2019.

However, the analyst expects “meaningful share erosion for Keytruda beyond 2017 as competitor I/O combo data reads out.”