There's little question that Merck (NYSE:MRK) needs a win out of its pipeline soon. Recent stumbles have Merck struggling to offset the sting of generic competition on some of its best-selling drugs.

The win may come in the form of MK-3475, a potential blockbuster treatment for advanced melanoma. The Food and Drug Administration gave MK-3475 breakthrough therapy designation based on prior phase 1b success. If MK-3475 succeeds in a phase 3 faceoff with Bristol-Myers Squibb's (NYSE:BMY) Yervoy, Merck could end up with a game-changing drug.

Conducting a flurry of studies
Merck is treating 3,000 patients with MK-3475 across eight different studies. The size of Merck's MK-3475 program hints at its expectations and early results suggest the drug may prove a powerful weapon in battling tough to treat melanoma.

Given the significant unmet need, that's welcome news to melanoma patients. Some 73,000 Americans will be diagnosed with melanoma this year, and 9,500 die every year from the disease. The need is even greater in sunnier climates, where incidence rates can be 10 to 20 times higher.

During trials, MK-3475 is showing promise in changing outcomes for these patients. Of those treated with MK-3475 during a phase 1b trial, 81% were alive following 12 months of therapy.

The drug also reduces tumor size, with 41% of treated patients seeing tumors shrink. The percentage seeing a tumor size decrease jumps to 51% when treated with higher doses. Importantly, 10% of patients responding to the treatment were disease free at the end of the period. And the disease's progression was halted in 88% of the responders.

Results from the MK-3475 versus Yervoy trial should be available as early as next summer. But, MK-3475 has other cancer in its sights too. In one, Merck's study for non-small-cell lung cancer, or NSCLC, it's matched up against a combination therapy that includes Eli Lilly's (NYSE:LLY) Alimta. Alimta contributed sales of $189 million to Lilly through the first nine months of this year. Another study compares MK-3475 against a cocktail including Sanofi's former cancer blockbuster Taxotere in NSCLC. Prior to losing patent protection back in 2011, Sanofi made $3 billion a year from that drug.

Another study takes on one of Merck's own drugs, Temodar. That drug, approved in 1999, lost patent protection this year after generating $917 million in global sales for Merck in 2012. This past summer, generic manufacturers Teva Pharmaceutical and Perrigo teamed up to launch their own version of Temodor. The Teva and Perrigo threat has Merck angling to prove MK-3475's superiority, because if it can, it may insulate the company from losing ground to the new generics.

Winning against Yervoy
But the most highly anticipated study is the face-off with Yervoy, which Bristol-Myers won approval for back in spring 2011. Yervoy has grown to represent one of Bristol-Myers best growth opportunities, with sales jumping 33% to $238 million in the third quarter. That helped Bristol post growth of 9% from a year ago, despite facing patent expirations on its big drugs Plavix and Avapro.

Bristol-Myers isn't about to back away from the fight. The company has an aptly named Checkmate-067 study for Yervoy as a treatment for previously untreated advanced melanoma. Data from that trial could come in 2016. But we could get data as soon as next August for Bristol's Checkmate-064 phase 2 study combining Bristol's PD-1 drug Nivolumab with Yervoy.

The prospects of Nivolumab may be as strong as MK-3475 given Bristol-Myers has 25 studies ongoing for it across eight different tumor types. In trials, 40% of patients responded to Nivolumab and a third of patients saw tumors shrink.

The money at stake for Merck and Bristol-Myers is big given Yervoy's sales run rate makes it a blockbuster. Yervoy could become Bristol's biggest seller by 2016, thanks not only to a big patient pool, but a price tag of roughly $120,000 for a four-dose course of treatment.

That market and pricing power also has the attention of Roche (NASDAQOTH:RHHBY). Roche is working hard to advance its own PD-L1 therapy through clinic. MPDL3280A is matched up with Roche's Zelboraf in a phase 1 trial treating advanced melanoma.

Back in 2011, Zelboraf, which carries a $9,400 per month price, won FDA approval for advanced melanoma after demonstrating it nearly doubles survival versus chemotherapy. Roche generated sales of $250 million from Zelboraf last year -- its first full year since winning approval. That strength is continuing this year, with Zelboraf revenue up 84% year over year through the first six months.

Foolishly final thoughts
The ability of Merck's MK-3475 to shrink tumors in 52% of patients matches up almost identically with results from combining Bristol-Myers' Yervoy and Nivolumab, according to results presented in the New England Journal of Medicine.

Merck will need to maintain at least equal footing with Yervoy through trials if it hopes to win away Yervoy's market share. If MK-3475 remains successful through clinic, its single drug dosing may prove a significant advantage over a two drug Yervoy and Nivolumab combination. That suggests MK-3475 may have pricing power at least equal to Yervoy and a much-needed blockbuster.

 

Todd Campbell has no position in any stocks mentioned. Todd owns institutional research firm E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd also owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.