Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Merck & Co Inc. and its immune-boosting cancer drug Keytruda keep putting out market stunners.  

A clinical trial failure by Bristol-Myers Sqibb Co. in August gave Merck a big head start in treating lung cancer, leaving Keytruda as the only drug of its type available to newly diagnosed patients. And on Monday, Merck announced the FDA had accepted its application to combine Keytruda with chemotherapy to treat a much wider group of patients than it currently does.

Approval of the combo could come in May, a year ahead of expectations, giving Merck free rein in a $10 billion-a-year market for lung cancer patients. Merck's combo could get to market before its competitors even get a chance to disclose their own lung-cancer trial data. 

For the second time in six months, Merck has bested Bristol-Myers in a race for approval for lung cancer drugs and snatched some of its market cap
Source: Bloomberg

But a potentially longer-lasting advantage for Merck will be its combo's relative safety.

So-called immune-oncology (IO) drugs work by boosting the body's immune system to fight cancer. But these drugs can also turn the immune system against other parts of the body, creating potentially deadly side effects. Bristol and AstraZeneca PLC  have focused on combining two different IO drugs, an approach that looks to be substantially more toxic than adding Keytruda to commonly used chemotherapy. 

That safety gap will create a higher bar for market uptake for IO/IO combinations, especially if Merck's approach has extra time to gain a foothold in the market.

Bristol's drug, Opdivo, got into the overall cancer market more quickly, with a broader initial rash of approvals than Keytruda. But lately Keytruda sales forecasts have gained at Opdivo's expense. It might soon be time to call Keytruda the IO frontrunner. 

Quick Shift
In the space of six months, Opdivo has gone from assumed runaway victor in immune-oncology to a neck and neck race with Keytruda
Source: Bloomberg

Pricing is a bit trickier to parse, but could also help Merck in the long run. Combinations of two IO drugs will likely cost in excess of $250,000; Bristol's Yervoy and Opdivo combination is approved in skin cancer at an annual cost of $256,000, for example. Keytruda costs about $150,000; adding the chemo duo of Eli Lilly & Co's Alimta and generic carboplatin could potentially result in a similar price to an IO/IO combo.

Unless this first generation of IO/IO combos ends up being substantially more effective than Merck's combo -- a possibility, but one that will take some time to determine -- it may have a hard time making commercial headway due to the safety gap with Keytruda.

And if Alimta loses patent protection in the U.S., or if cheaper chemotherapy regimens prove effective in combinations, then Keytruda's combo will only get cheaper relative to IO/IO combos, adding to their pain. 

It's easy to see why Bristol and Astra chose the IO/IO path. Their combos are wholly owned, giving them pricing power and no need to share revenue with others. Their double dose of immune-unleashing drugs offers the chance for some truly extraordinary results. But this is another example of Merck's relative caution paying off over others' attempts to seize more of the pie for themselves. 

It's not often you land on a low-risk, high-reward strategy. But for now, at least, Merck seems to have found it, making it less likely to relinquish its IO lead. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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