In late February, the combo of Merck's (MRK -2.69%) Keytruda and a drug that Merck co-owns with Eisai (ESALY -2.10%), known as Lenvima, received its second regulatory approval from Japan's Ministry of Health, Labour and Welfare (MHLW). 

The drug pairing was given the green light to treat patients with unresectable or metastatic renal cell carcinoma (RCC). This approval came just weeks after the Keytruda-Lenvima therapy was authorized in Japan to treat patients with types of endometrial cancer

What data prompted the MHLW to approve Keytruda and Lenvima? And what effect will this have on pharma stock Merck's revenue? Let's dig deeper into the results from the phase 3 clinical trials for the drug combo and the kidney cancer market in Japan.

A potent therapy

Kidneys are those two bean-shaped organs that are attached to the upper back wall of the abdomen. They have a variety of functions, including removing excess water, salt, and waste products from the blood, and controlling blood pressure. 

Accounting for nine out of 10 kidney cancer cases, RCC is the predominant form of kidney cancer. Approximately 30% of RCC patients in Japan have metastatic cancer at the time of their initial diagnosis. This means that the cancer has spread from the initial site in the kidneys to more distant organs like the lungs and/or bones. And often, metastatic cancers are unable to be removed. This is referred to as an unresectable case of cancer.

When RCC patients have progressed to metastatic cancer, the prognosis has historically been poor. The median overall survival rate of metastatic RCC patients was less than two years, at just 21.4 months. And just 22.5% of metastatic RCC patients were alive five years after diagnosis.

But the good news is that the prognosis for metastatic RCC patients could potentially improve now that the Keytruda-Lenvima therapy was approved in Japan. During Merck and Eisai's phase 3 clinical trials, metastatic RCC patients were randomized into two groups. The first group received the Keytruda-Lenvima pairing while the second group was treated with the standard of care treatment, which is Pfizer's (PFE -2.03%) Sutent (also known by its scientific name of sunitinib). 

Patients treated with Keytruda-Lenvima experienced a median progression-free survival (PFS) time of 23.9 months. This was far superior compared to the median PFS time of 9.2 months for patients receiving Sutent. PFS is the length of time during and after the treatment of a disease that a patient lives with the disease without it getting worse. 

A patient talks to their doctor during an appointment.

Image source: Getty Images.

A small revenue boost for Merck

The Keytruda-Lenvima combo could be a gamechanger for countless metastatic RCC patients in Japan. But how much could it financially contribute to Merck?

Each year, 22,500 patients in Japan are diagnosed with RCC. Based on the 30% who have metastatic RCC at the time of diagnosis, this is equivalent to nearly 7,000 patients. And with a median survival time of nearly two years per patient, I will assume that there is a market of 13,500 patients. 

Since the Keytruda-Lenvima pairing beat out the standard of care treatment Sutent, I believe it's reasonable to assume a patient share of around 30%. This works out to about 4,000 patients.

Keytruda has an annual list price of $178,000 in the U.S. Adjusting for the fact that medications in Japan are almost 50% cheaper than in the U.S., Keytruda has an annual list price of around $90,000 in Japan. And considering patient assistance programs and negotiations with health insurers, I will assume that the average annual net price is $50,000 per patient in Japan for Keytruda.

The Keytruda portion of the drug combo alone would generate $200 million in annual sales for Merck. I'll also assume that Lenvima would generate $200 million in annual sales for Eisai to book. Since Merck is entitled to half of Lenvima's profits, this would provide an additional $30 million in revenue for the company. This is based on the expectation that the net margin on sales of Lenvima would be similar to the 31.4% that Merck posted in 2021. This would only be a 0.4% bump over the $57.3 billion in revenue that analysts are anticipating Merck will report in 2022. But every bit of revenue is important for a pharma stock, and this is the boost from just one major market.

A trifecta of yield, growth, and value

Merck looks to be a stock that offers something for every type of investor. Its market-beating 3.3% dividend yield is more than double the 1.3% of the S&P 500 index, which should appeal to income investors. And the company has good growth prospects too. Analysts are expecting that Merck will deliver 9% annual earnings growth through the next five years. 

Best of all, Merck's current $83 share price offers a forward price-to-earnings (P/E) ratio of just 11.4. This is an overall bargain for a stock of Merck's quality and growth prospects, which makes it a top healthcare stock to buy and hold forever.