Since launching in late 2014, sales of Merck & Co.'s (NYSE:MRK) Keytruda, a cancer fighting drug, are already growing quickly. However, a new FDA approval of Keytruda as a first-line therapy for metastatic non-small-cell lung cancer could make Keytruda's sales pace accelerate even more in the coming year.

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What is Keytruda?

Keytruda inhibits the activity of programmed death ligand 1, or PD-L1, a key protein that hinders a patient's T-cell's from identifying and killing cancer cells. By curbing the expression of PD-L1, Keytruda keeps cancer from being able to exploit PD-L1 to evade the immune system. That's incredibly important because studies show that high tumor expression of PD-L1 can be associated with increased tumor aggressiveness and a significant increase in risk of death.

Based on Keytruda's positive efficacy in human trials, the FDA's already approved Keytruda's use in melanoma, head and neck cancer, and lung cancer patients.

Up until now, Keytruda's use in lung cancer was restricted to a subset of patients whose disease remains after receiving platinum-containing chemotherapy, and whose tumors have a specific genetic make-up. However, the FDA significantly expanded that patient population on Oct. 24 when it approved Keytruda's first-line use in metastatic NSCLC patients prior to chemotherapy who express PD-1 at a rate greater than 50%. A decision on Keytruda's use in these patients hadn't been expected until Christmastime.

Keytruda's market opportunity

Keytruda competes head-to-head against Bristol-Myers Squibb's (NYSE:BMY) PD-1 inhibitor Opdivo, and so far Opdivo's sales have outpaced Keytruda's. While Keytruda's sales were $314 million in Q2, Opdivos's sales that quarter totaled $840 million. Opdivo's market leading position has been largely due to the fact that Keytruda requires PD-L1 testing prior to its use, while Opdivo doesn't.

Opdivo's advantage, however, is disappearing. Although both Merck and Bristol-Myers Squibb evaluated their drugs in the first-line NSCLC setting, only Keytruda proved that it works better in high-expressing PD-1 patients than standard chemotherapy.

Keytruda's win in first-line patients should encourage doctors to switch over to it quickly, making PD-L1 testing common. If so, then the availability of PD-L1 data later in treatment could erase Opdivo's advantage in later-stage patients who haven't yet received Keytruda therapy. Since Keytruda's once every three week dosing is better than Opdivo's bi-weekly dosing, Opdivo's NSCLC revenue could shift rapidly to Merck over the next year.

Following Keytruda's first-line approval, analysts are adjusting their peak sales estimates higher for Keytruda and lower for Opdivo. For instance, Bernstein analysts have bumped up their Keytruda outlook for next year by $1 billion and they now expect Keytruda sales of $7.8 billion in 2025, up from $5.35 billion previously. In Q3, Keytruda's sales clocked in at a $1.4 billion pace. Bernstein is targeting Opdivo sales of $10.3 billion in 2025, down from prior estimates of $13.3 billion.

Looking ahead

Up-regulation of PD-L1 allows many cancer types to evade the immune system, and both Merck and Bristol-Myers are conducting dozens of trials in hopes of expanding Keytruda and Opdivo's labels to include more patients. Many of these trials are combining Keytruda and Opdivo with other cancer fighting agents, which suggests that these drugs could become the backbone of a standard of care in cancer.

Assuming trials continue to pan out, both of these drugs appear to have long-lasting, megablockbuster potential. Since Keytruda has patent protection in the U.S. until 2028, it's likely to move the needle for investors for a while. 

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