What happened

Shares of America's second largest pharmaceutical company, Merck & Co., Inc. (MRK 0.10%) suffered their worst month in years, falling 14% in October, according to data from S&P Global Market Intelligence. Although the company improved its outlook for the rest of 2017, it seems Keytruda's growth might not provide enough lift to keep the entire company from losing altitude.

So what 

In the third quarter, Merck reported a year-over-year 194% rise in sales of Keytruda, largely due to a recent label expansion that made it the only drug of its class available for newly diagnosed non-small cell lung cancer (NSCLC) patients in the U.S. last year. At a $4.2 billion annualized run rate, the immunotherapy drug is the company's second largest revenue stream, and is singlehandedly pulling along a freight train full of aging products with declining sales.

Person making a frustrated gesture while looking at a collection of charts.

Image source: Getty Images.

This is why the market freaked out when Merck quietly withdrew an application that would have vaulted it to the front of the line for NSCLC patients in the EU. The news was especially disturbing because Keytruda's first-line approval in the U.S. was an accelerated one of the conditional variety and Merck recently announced it would need to delay the release of data that will either cement the approval or overturn it.

Now what

Merck had good reasons to withdraw Keytruda's European application and delay confirmatory trials for the FDA. American regulators have been speeding new cancer therapies to the patients they might save with far less data than the European Medicines Agency is comfortable with. Clinical trials often provide evidence a new treatment can shrink tumors within a matter of weeks, but these patients need to be observed for years to show a candidate actually boosts their chances of survival. 

Merck will most likely use data from the Keynote-189 study to confirm Keytruda's accelerated first-line lung cancer approval in the U.S. and to bolster the application it recently withdrew from the EU. The company has delayed the expected completion date for the study in order to raise overall survival from a secondary goal to official co-primary endpoint status along with progression-free survival.

Although I'd be shocked if Keytruda doesn't eventually earn a first-line lung cancer label expansion in the EU and retain its accelerated FDA approval, results from Keynote-189 aren't expected until early 2019. That gives competing therapies from Merck's rivals a big opportunity to catch up.