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. has spent the past several months vanquishing its rivals in the market for immune-boosting cancer drugs. It just got a reminder that its perch is a shaky one.

Merck on Thursday broke an 11-quarter streak of beating earnings forecasts by reporting fourth-quarter results that merely met expectations.

While most recent Merck news has been good, the company can't afford to relax as its becomes increasingly dependent on its immune-boosting cancer drug Keytruda and as sales of its older drugs decline.

It should learn a lesson from rival Bristol-Myers Squibb Co., which Merck has supplanted as the presumed leader in so called immune-oncology (IO) drugs. It must avoid becoming a one-drug company in a market that tends to shift dramatically in the blink of a clinical trial.  

Reversal of Fortune
Merck's cancer-drug success has come at Bristol-Myers' expense
Source: Bloomberg

Merck was the first company to get FDA approval for an IO treatment for newly diagnosed lung cancer patients. It may get approval for a combination of Keytruda with chemotherapy that could expand its reach to many more patients.  

But some analysts are skeptical the FDA will approve the combo on what is a relatively small data set. Meanwhile, Roche Holding AG is working on a similar combo.

A regulatory reversal or unexpected competitor success could mean a rival catches up to Merck before it has time to truly enjoy the view from the top.

Such an outcome seems unlikely right now, but then so did Bristol's fall from grace. Two more companies will join Merck, Roche, and Bristol in the IO market soon, rendering it more fragmented and difficult to dominate.

The Key
Merck's sales growth going forward is in large part dependent on Keytruda meeting or exceeding expectations
Source: Bloomberg

Beyond Keytruda, Merck's late-stage pipeline includes a cholesterol drug of a type that has blown up spectacularly for other companies; a late-to-market diabetes drug; and an entry in the always-risky race to treat Alzheimer's. None are a reliable plan B.

Merck faces generic competition for important drugs such as Zetia and Vytorin, and its current best-selling diabetes drugs Januvia and Janumet are in an increasingly tough market. 

Merck's strategic decisions with Keytruda have been hard to fault. What it's doing beyond that drug is open to question, however. 

The company needs to leverage its good fortune and strong balance sheet into more alternate paths to sales growth. The IO throne has shown itself too shaky to do anything else.

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

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