Troubled Merck (NYSE:MRK) has been revamping its R&D strategy since the latter part of last year. In the midst of cuts, establishing new global innovation hubs, and narrowing its R&D interests , Merck is throwing its force behind its cancer immunotherapy potential with an experimental drug called MK-3475.

The backstory

The cancer immunotherapy field has been centered around PD-1, a novel target in malignancies that allow cancer cells to be marked and unmasked for a patient's own immune system to destroy. Roche's (NASDAQOTH:RHHBY) MPDL3280A, targeting the PD-1 ligand PD-L1, also recently posted impressive responses in non-small cell lung cancer in the latter part of last year. It was Bristol-Myers Squibb (NYSE:BMY), however that jump-started the field with nivolumab for melanoma and then later for non-small cell lung cancer.

Merck has been excited about MK-3475, or lambrolizumab, for some time. The drug was given the breakthrough therapy designation by the FDA after an early stage study of over 1000 patients was released. It has long been known that Merck was closely eyeing MK-3475 as a potential blockbuster, and now the R&D restructuring certainly reflects that.

Merck R&D Chief Roger Perlmutter announced a plan and allocation of resources to launch a submission to the FDA in the first half of 2014 . Currently the drug is in three studies for melanoma, one of which is a late-stage study comparing it to current therapy ipilimumab .

Meanwhile, Roche and Bristol-Myers are unlikely to take this announcement lying down. Bristol Myers-Squibb expects to file a new drug application for nivolumab this year, and has shown even better responses in the combination of nivolumab and Yervoy, a combination that in itself could be a blockbuster for the company .

While this will certainly reinvigorate the race between Merck, Roche, and Bristol-Myers Squibb for the first PD-1 cancer therapy, the signal it sends on Merck's R&D is perhaps more important. In a 7 year blockbuster drought, the company has long been criticized for failing to get drugs through late-stage trials and on to the market. .

Estimates for the drugs are all quite impressive. Experts predict that 50% of cancer treatments in the next decade will involve immunotherapy. Of the current top three drugs, FierceBiotech reported that analysts expect $4 billion for Bristol-Myers' nivolumab, $3.5 billion for Roche's MPDL3280A and $3 billion for Merck's MK-3475 .

With billions of dollars of the line, Merck's aggressive move may force Roche and Bristol-Myers to do the same. For Merck, however, the breakthrough designation achieved late last year for MK-3475 as well as this 'fast track' focus will hopefully help investors regain confidence in Merck's pipeline.

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