Though some Merck & Co. Inc. medicines missed the sales mark in 2017, its cancer therapy Keytruda remains a focal point of both revenue and research efforts, according to executive comments on the earnings call.
Hepatitis C drug Zepatier made $296 million in the quarter, an increase over the same period in 2016 but more than $100 million under Wall Street expectations, according to Jefferies analyst Jeffrey Holford in a note. Meanwhile, cholesterol medicine Zetia, known as Vytorin outside the U.S., beat consenus estimates but ultimately saw a 43% sales drop in the quarter and nearly the same over the course of the year.
Yet the company's blockbuster Keytruda — an immuno-oncology drug that works by inhibiting an interaction between PD-L1 proteins on cancers and PD-1 proteins on healthy cells — took center stage on the earnings call. Global Keytruda sales nearly tripled versus 2016, topping $3.8 billion in the year.
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The company now has more than 700 registered Keytruda clinical trials, including 400 studies of the drug in combination with others — research that is spanning more than 30 tumor types, according to Chairman, CEO and President Kenneth Frazier.
Eyes are on one study in particular: Keynote-189, a trial in non-small cell lung cancer, one of the biggest markets in oncology.
Executives were careful to stick to only the details made public in a recent update on the trial, which is now slated to wrap up in 2019. Late in 2017, the company moved back its deadlines for data from the study in order to add a new and more challenging goal, overall survival, to the already stated benchmark of progression-free survival, or living without the disease getting worse.
The move put Keytruda behind some competitors' result dates, as both Roche Holding AG and Bristol-Myers Squibb Co. expect data in the first half. But positive outcomes could also eventually put Keytruda in the lead for first-line use in the class known as checkpoint inhibitors, especially because one arm of the study combines Keytruda with chemotherapy rather than newer, more complex immuno-oncology drugs such as Bristol-Myers' Yervoy or Incyte Corp.'s epacadostat.
If a Keytruda and chemotherapy combination stacks up well against these newer therapies, there is strong incentive for physicians to go that road, filled with many approved chemotherapies that are often much less expensive than newer therapies.
The chemotherapy combo will "set the floor" for lung cancer regimens going forward, Robert Davis, Merck's CFO and executive vice president of global services, said. "You need to do at least that well, and that's very important going forward in the future."
Yet with such a heavy focus on Keytruda and another asset, the breast cancer therapy Lynparza in partnership with AstraZeneca PLC, some analysts questioned the pipeline potential outside of oncology.
Keytruda is a pipeline within a product, President Roger Perlmutter said, adding that outside of cancer the company is developing a range of vaccines to join the steadily growing sales for Gardasil, a human papillomavirus vaccine to prevent cervical cancer. Merck has also seen strong performance in animal health, where other big drugmakers such as Eli Lilly and Co. have struggled in recent quarters.
Gardasil made $633 million in the quarter, a 17% change over the same period in 2016 and exceeding Wall Street's $577 million expectations.
Management was not opposed to dealmaking in the future, with Frazier saying the company is actively engaged in finding the best science to grow their portfolio. However, he resisted the idea of a large deal, questioning the long-term value of such acquisitions.
The company expects a corporate tax rate of 14% to 15% in 2018 and a one-time charge of $2.6 billion in the fourth quarter, related to repatriation fees for offshore cash.
In the wake of tax reform, Merck is planning about $12 billion in capital investments over the next five years, with about $8 billion of that going into U.S. development and all focusing on development and capacity efforts for its focus areas of oncology, vaccines and animal health, Davis said.

