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Stock Analyst Update

What Drug Study Flop Means for Merck, Incyte

The failure of their cancer immunotherapy combination is a bigger blow to Incyte than to Merck.

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 Merck (MRK) and  Incyte (INCY) announced that the phase 3 Echo-301/Keynote-252 study of epacadostat in combination with Keytruda in metastatic melanoma has failed, with the combination unable to improve progression-free survival over Keytruda alone and unlikely to improve overall survival as well. With a hazard ratio of 1.00 (no trend toward a benefit), the companies are halting the study. We expect this to have a significant impact on our fair value estimate for Incyte, as we’ve previously pointed to epacadostat as a key driver of the company's valuation. The impact on Merck is more muted, as the company is already an established leader in immuno-oncology with Keytruda monotherapy and is in the process of launching and gathering more data on the combination of Keytruda with various other regimens, including chemotherapy.

Early data for the combination of Incyte’s IDO inhibitor and Merck’s Keytruda in melanoma was promising, with what looked like slightly better efficacy without the additional side effects that some drug combinations can trigger. Management is still diving deeper to see if there could be some patient subgroups (PD-L1 status, BRAF status, and so on) that did better on the combination. However, given the hazard ratio for the overall study and what we see as similar profiles for PD-1 antibodies Keytruda and Opdivo, we think this bodes poorly for epacadostat’s other phase 3 programs that remain ongoing.

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Karen Andersen does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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