Merck & Co. Inc.is heartened by market data showing about 70% of lung cancer patients who test positive for the PD-L1 biomarker are placed on Keytruda therapy, which could turn into an advantage as the PD-1 inhibitors move into the first-line setting.

Keytruda's lung cancer approval came with a requirement for PD-L1 expression testing, which was a hurdle that Bristol-Myers Squibb Co.'s Opdivo (nivolumab) didn't have ([A#00151012002]).

"We're already seeing about 30% of patients with lung [cancer] being tested, and about 70% of those are in first-line," Adam Schechter, president of global health, told the firm’s May 5 earnings call. "The other thing that's important is that when patients are being tested, if it's positive, right now, the vast majority of those patients are going to Keytruda."

Merck thinks that increased PD-L1 testing in the lung cancer setting will position its drug advantageously upon obtaining a hoped-for approval in first-line non-small cell lung cancer, where the biomarker is expected to play a larger role ([A#00160208009]). Keytruda is in line to add the first line indication about three months ahead of Opdivo.

During the first quarter of 2016, Keytruda (pembrolizumab) yielded global sales of $249m, with most of that revenue continuing to derive from the PD-1 inhibitor's first indication, in melanoma. That, along with what analysts called a solid launch of the firm's hepatitis C combination Zepatier (grazoprevir/elbasvir) at $50m, was a main highlight from a basically flat sales quarter for the New Jersey pharma. Merck posted total worldwide sales of $9.3bn during the quarter, down 1% year-over-year.

"We are now trending … at about a billion-dollar product [with Keytruda], just based on where we are today," Schechter said. "About half the sales were outside the US, half the sales in the US, and we continued to see growth in the US."

But most of the sales are coming from the initial indication, rather than the larger, more competitive lung cancer market. "If you look at where sales are coming from, the vast majority of the sales are still coming from melanoma indications," Schechter said. '"And if you look at that, a lot of it is still coming in second-line, although we see first-line continuing to grow. Internationally, the sales are coming primarily, obviously, from our melanoma indication."

During the first quarter, Keytruda sales were divided almost evenly between the US and EU, he said. "We're launching in melanoma in approximately 50 markets globally, and in some markets we are the market leader despite being second to launch," Schechter noted. "Given the strong survival results we've demonstrated in melanoma and second-line lung cancer, the early data we've seen in more than 20 cancer types, as well as the breadth and the depth of the Keytruda development program, we remain confident that Keytruda will become foundational to the treatment of cancer over time."

Despite being the first PD-1 inhibitor approved in the US, Keytruda gradually fell behind the second entrant in the class, Bristol's Opdivo, which brought in $704m during the first quarter, partly on the strength of greater uptake in lung cancer. Opdivo holds an advantage because it was first to market in the indication and its label, unlike Keytruda's, does not require PD-L1 testing.

Label Additions Advancing For Keytruda

Merck Research Laboratories President Roger Perlmutter pointed out that Merck enjoyed much success during the quarter in continuing its efforts to add to Keytruda's labeling, including getting a breakthrough therapy designation for the drug in classical Hodgkin lymphoma. In April, FDA accepted a supplemental new drug application (sNDA) to add recurrent or metastatic head-and-neck cancer to Keytruda's label, the exec noted. That filing is under priority review with an August user fee date, he said.

In lung cancer, Keytruda is under review in Europe to add second-line NSCLC to its label, Perlmutter said, while a filing under review at FDA might lower the PD-L1 biomarker threshold for treatment of second-line NSCLC from the current 50% expression or greater to just 1% expression. A decision on that filing is expected by October ([A#00160314013]). The KEYNOTE-024 trial studying the drug in the first-line setting, meanwhile, is on track to deliver data at mid-year, he added.

Schechter, however, noted that PD-L1 biomarker testing is increasing in the lung cancer setting in general, with patients who express PD-L1 usually being placed on Keytruda therapy. Merck thinks its efforts to encourage adoption of this testing will give its drug an advantage, beyond the three month or so window it is expected to have over Opdivo in the first-line NSCLC setting ([A#00160208009]). Bristol, however, might be narrowing the gap ([A#14160428005]).

"We are working to integrate PD-L1 testing as part of the routine treatment of lung cancer, by continuing to demonstrate the value testing brings to physicians, to payers and to patients," he explained. "Testing rates in the United States continue to increase, which is important not only for our second-line indication, but we believe also for when we have a first-line indication."

PD-L1 testing continues to increase in the US, and will spread even more as PD-1/L1 inhibitors move to the front-line.

Asked if he expected FDA labeling to specify a certain test be used for PD-L1 expression in first-line NSCLC, Schechter said he thought labeling for both drugs would be neutral, but that the expectation that such testing would be required in first-line for both Keytruda and Opdivo should mean a strong edge for Merck.

"It doesn't matter what test the lab uses in order to designate whether the test is PD-L1-positive or not," he asserted. "I don't think that is going to change. I think it will be up to the labs to decide which testing that they use and then how they determine it to be positive or not."

In a same-day note, Morningstar analyst Damien Conover concurred that a PD-L1 testing requirement in first-line NSCLC should benefit Merck.

"To gain in the large lung cancer indication, we believe expected use in the first-line setting will enable Keytruda to compete more effectively against Bristol’s Opdivo, as both drugs will likely need to test for PD-L1 status; in the second-line setting, only Keytruda needs the PD-L1 diagnostic," he wrote. "Also, with Merck’s first-line lung cancer study set to report in June, Keytruda should gain about a three-month first-mover advantage over Opdivo in first-line lung cancer."

BMO Equity Research analyst Alex Arfaei pointed out in his May 5 note that Merck's advocacy of PD-L1 testing, which Bristol is not doing, should prove advantageous, even if clinicians prefer Bristol's assay, which is considered more sensitive than other tests available.

"The fact that oncologists are associating Keytruda with PD-L1-positive NSCLC patients could have important commercial implications for the first-line setting, which will likely require screening for all patients," he said. "We continue to argue that Keytruda is likely to get an unrestricted first-line label … [and] that physicians and labs will likely want to use the most sensitive test to determine PD-L1 positivity (e.g., Bristol’s assay to detect 1% PD-L1 expression), and determine whether PD-1 therapy is suitable for the patient, and then choose between Opdivo and Keytruda for PD-L1 positive patients.

"In other words, we do not expect the choice of treatment to precede and determine the choice of assay," Arfaei continued. "If Keytruda’s label is not restricted to a specific assay or a threshold, then Keytruda could be used in patients who were deemed PD-L1-positive using the Bristol or other FDA-approved assays, and thus its use would not be restricted to high PD-L1 expressers."

The situation will also be complicated by the arrival of Roche's PD-L1 inhibitor atezolizumab, which is under review at FDA for lung and bladder cancer. Roche is developing its own diagnostic, which it is positioning as even more sensitive Also see "Roche's Oncology Strategy: The Long Game Comes Into Focus" - Pink Sheet, 15 June, 2015..

Big 'Bolt-On' Deal Being Sought

Merck CEO Kenneth Frazier opened the call talking about the pharma's goals for M&A. Business development activity is one of the company's top priorities, he said, adding that it is "very actively engaged in finding the best external innovation that will help grow our portfolio and pipeline."

Pushed for specifics, Frazier said that while assets that would bolster the immuno-oncology business are an obvious focal point, Merck does not want to be blind to other areas of strong science that could add to its pipeline and portfolio.

"We have a strong balance sheet and we can go after deals across the whole spectrum: early-, middle- and late-stage compounds," he said, later adding that "I'm not focused on a large consolidation-type merger such as we have seen in the industry in the past. But I also think that bolt-on acquisitions can be larger than, for example, a Cubist Pharmaceuticals Inc."

Merck paid $9.5bn in late 2014 to acquire the antibiotic specialist ([A#14141208005]). BMO's Arfaei speculated that Frazier's comments indicate that a buyout of Medivation Inc., which could strengthen the company's oncology business, would fit within Merck's grasp. The San Francisco biotech said it had a rejected a recent $9.3bn buyout bid from Sanofion April 29 ([A#14160501001]).

Merck Is Finding PD-L1 Testing Is Helping Keytruda

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