Bristol Paling

Merck Tightens Its Grip on the Lung-Cancer Market

New Keytruda trial data suggest analysts underestimate its sales potential.
Photographer: Daniel Acker

Just about every time Bristol-Myers Squibb Co. and Merck & Co. Inc. go head-to-head with lung-cancer trial results for their rival immune-boosting cancer drugs, Merck comes out on top. 

It happened again at a face-off Monday at the annual meeting of the American Association for Cancer Research in Chicago. Bristol released trial data suggesting, based on an early analysis, that a combination of its cancer drugs may work best for only for a narrow subset of patients. Merck, on the other hand, released data showing its own combo worked so well in preventing deaths in such a broad swath of patients that shares of smaller companies working on next-generation lung combinations, such as Nektar Therapeutics, fell alongside Bristol's.

Merck is setting a high bar in this lucrative market, and Bristol may struggle to clear it. 

Habit Forming

Merck has repeatedly benefited from lung-cancer trial data at the expense of Bristol-Myers Squibb

Source: Bloomberg

Bristol's drug Opdivo had the edge on Merck's drug Keytruda for the first couple of years these medicines were on the market, thanks to a trial strategy of targeting a broad range of patients, while Merck focused on a smaller group. Bristol's approach stopped working when Opdivo failed a trial in newly diagnosed lung-cancer patients in 2016, while the slow-and-steady Merck succeeded.

Now Bristol is testing Opdivo in combination with a different immune-boosting drug called Yervoy. The profit potential for Bristol is high, given that it owns both drugs. True to form, Merck has taken the more conservative approach of combining Keytruda with Eli Lilly & Co.'s older chemotherapy Alimta. 

Merck's chemo combo has consistently performed well in lung-cancer trials and has already been approved by the FDA. Bristol, in contrast, has delayed and made last-minute changes to its combo trial. Monday's data highlighted the gap between the two. Wall Street analysts expect Keytruda to outsell Opdivo for the first time this year and to keep topping it for years to come. But they are likely still underestimating Keytruda as Merck takes control of the lung-cancer market.

Swap

Analysts now agree that Merck's Keytruda is going to outsell Bristol-Myers Squibb's Opdivo -- which is an enormous about-face

Source: Bloomberg

This leaves Bristol in a tenuous position. Analysts expect Opdivo to account for more than a third of Bristol's 2021 sales, while they expect Keytruda to make up 22 percent of Merck's sales.

Both firms are dedicating huge portions of their research budgets to these programs. According to a Bloomberg Intelligence analysis, Merck is involved in 271 trials combining Keytruda with other treatments. Bristol has 260 such trials for Opdivo. But many of Bristol's tests involve the same Opdivo-Yervoy combination that has produced mixed lung results. And Merck has more financial firepower, generating about twice as much revenue as Bristol and spending about twice as much on R&D in 2017.

If Keytruda keeps up its breakneck sales growth -- which seems likely after Monday's results -- then investors will remain comfortable with its heavy spending. Bristol, on the other hand, will likely face more calls to diversify its research efforts if Opdivo keeps struggling.

The Tortoise and the Hare

Keytruda has sustained robust sales growth as Opdivo's has slackened

Source: Bloomberg

This market is still up for grabs in the long run. Roche Holding AG is making a push of its own in lung cancer with its competing drug Tecentriq. It's possible a different combination approach will blow Merck's out of the water. And though Merck has dominated lung cancer, Bristol has done better in other cancers -- the FDA on Monday approved the Opdivo-Yervoy combo to treat kidney cancer. 

But Merck has a valuable edge for now, and it will use its good fortune to make an aggressive play at lasting dominance. Bristol will be hard-pressed to match it. 

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

    To contact the author of this story:
    Max Nisen in New York at mnisen@bloomberg.net

    To contact the editor responsible for this story:
    Mark Gongloff at mgongloff1@bloomberg.net

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