Morningstar | Merck's Keytruda Looks Well Positioned to Drive Overall Company Growth
Merck's combination of a wide lineup of high-margin drugs and a pipeline of new drugs should ensure strong returns on invested capital over the long term. Further, Merck is through the worst of its patent cliff, which should remove the heightened generic competition the company has experienced over the past years. And after several years of only moderate research and development productivity, Merck's drug development strategy is yielding important new drugs.Merck's new products have mitigated the generic competition, offsetting the recent major patent losses. In particular, Keytruda for cancer represents a key blockbuster with multi-billion-dollar potential: It holds a first-mover advantage in one of the largest cancer indications of non-small cell lung cancer. Also, we expect new cancer drug combinations will further propel Merck's overall drug sales. However, we expect intense competition in the cancer market with several competitive drugs likely to report important clinical data between 2019 and 2020. Other headwinds include generic competition, notably to cardiovascular drugs Zetia and Vytorin, which is likely to create a drag on overall growth.After several years of mixed results, Merck's R&D productivity is improving as the company shifts more toward areas of unmet medical need. Owing to side effects or lack of compelling efficacy, Merck experienced major setbacks with cardiovascular disease drugs anacetrapib, Tredaptive, Rolofylline, and TRA along with Telcagepant for migraines. Safety questions ended the development of osteoporosis drug odanacatib. Despite these setbacks, Merck has some solid successes, including a successful launch for its PD-1 drug Keytruda in oncology. Following on this success, Merck is shifting its focus toward areas of unmet medical need in specialty-care areas, and Keytruda is leading this new direction. We expect Keytruda's leadership in non-small cell lung cancer will be a key driver of growth for the firm over the next several years.Merck & Co. is a global health care company that delivers health solutions through its prescription medicines, vaccines, biologic therapies and animal health products. The company's segments are: Pharmaceutical, which includes human health pharmaceutical products that consist of therapeutic and preventive agents for the treatment of human disorders, and human health vaccine products that consist of preventive pediatric, adolescent and adult vaccines; and Animal Health, which discovers, develops, manufactures and markets veterinary pharmaceuticals, vaccines and health management solutions and services, as well as a suite of digitally connected identification, traceability and monitoring products.
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