Raising Fair Value on Merck After Strong Keytruda Data
We expect the wide-moat drugmaker to take more share from Bristol, Roche, and AstraZeneca based on cross-trial comparisons that support Keytruda over competitive drugs.
Merck (MRK) reported strong Keytruda data in non-small cell lung cancer at the annual meeting of the American Society of Clinical Oncology, supporting increased utilization of Keytruda and increased market share. Based on the data, we increased our Keytruda projections to $15 billion in 2022 (ahead of consensus expectations of $12 billion), leading to a higher Merck fair value estimate of $70 per share. We continue to view the stock as undervalued, with the Keytruda opportunity not fully reflected in the current valuation. Keytruda's efficacy in lung cancer and several other types of cancers support strong pricing power and the company's wide moat.
At ASCO, Merck presented data from Keynote 042 (Keytruda monotherapy in PDL1 expressing patients at 1% or more in NSCLC) and 407 (Keytruda combination with chemotherapy in squamous NSCLC) showing that the drug reduced the risk of death versus placebo by 19% and 36%, respectively. We believe the data will drive Merck's market share in first-line NSCLC to 67% by 2022 and drive the total market for immuno-oncology drugs to $14 billion (up from our previous estimate of $10 billion) in this market segment. We expect increased market adoption following the efficacy data that should change the standard of care in most NSCLC settings.
We expect Merck will take more share from Bristol, Roche, and AstraZeneca based on cross-trial comparisons that support Keytruda over competitive drugs. However, we don't expect any major shifts in valuation for the competing firms, as the increased expectations for the overall market and strong data from competing drugs in other cancers mitigates the NSCLC market share shifts to Merck. We expect Roche's Tecentriq will likely gain the next largest amount in this market at 20%, (especially in the ALK and EGFR mutation segments where competitors lack data), followed by Bristol's Opdivo plus Yervoy at 11% (with strength in the TMB high/PDL1 low patient group).
Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.
Damien Conover does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.