On March 21, the U.S. Food and Drug Administration (FDA) gave the green light to Merck's (MRK 1.33%) cancer drug Keytruda for yet another indication. The FDA authorized Keytruda to treat patients with advanced endometrial carcinoma with certain additional, key characteristics -- and whose disease has progressed after prior treatments.
Why did the FDA approve Keytruda for its second endometrial cancer indication? And what impact could it have on the pharma stock Merck's total revenue? Let's dig into the data from Keytruda's phase 3 clinical trial results and the U.S. advanced endometrial cancer market to find out.
A potent treatment option
Endometrial cancer is a form of cancer that starts in the uterus. The symptoms include pelvic pain and bleeding between periods. It's estimated that roughly 30% of endometrial cancers include "microsatellite-instability" or "mismatch-repair-deficiency." These are the two types for which Keytruda was just approved. The former means that a change has occurred in the DNA of cancer cells, while the latter means that there is an inability to repair mistakes made when DNA is copied in the cell.
Approximately 80% of endometrial cancers are caught in the early stages, when the cancer is localized to the uterus. When endometrial cancer is diagnosed at the localized stage, the five-year relative survival rate is quite high at 96%. This means that patients diagnosed with localized endometrial cancer are 96% as likely as those that don't have the disease to live for at least five years after diagnosis.
For patients diagnosed with distant or metastasized endometrial cancer that has spread to organs like the lungs, bones, or brain, the five-year relative survival rate is just 20%. Fortunately, the approval of Keytruda could be a game changer for patients diagnosed with microsatellite-instability or mismatch-repair-deficiency advanced endometrial cancer.
This is because the objective response rate for patients receiving Keytruda in its phase 3 clinical trial was 46%. This means that nearly half of patients taking Keytruda experienced either a reduction in the size of a tumor or the cancer completely disappeared, and they are in remission.
And of the patients that responded to treatment, 68% had responses lasting at least 12 months and 44% had responses lasting 24 months or longer. Since these patients weren't eligible for other treatments like radiation or surgery, Keytruda was essentially their last hope. The drug helped a significant portion of patients reduce or eliminate their cancer for lengthy periods of time, so it didn't disappoint.
The revenue lift will be incremental
Keytruda has proven itself to be a powerful treatment option. But how much of a market will there be for this indication?
First, there are over 65,000 patients diagnosed with endometrial cancer each year in the U.S. And 30% of those cancers are microsatellite instability or mismatch repair deficient. Taking it one step further, about 20% of patients with endometrial cancer are at an advanced stage. This translates into an eligible patient population of nearly 4,000.
Thanks to the tremendous efficacy of Keytruda and Merck's marketing might, I believe the drug will be able to achieve a 50% patient share -- or 2,000 patients.
Keytruda has an annual list price of $182,000 in the U.S. But factoring in negotiations with health insurers and patient assistance programs, I will assume that the average annual net price is $100,000 per patient (and covered at least partly by the insurer).
This works out to $200 million in annual sales potential for Merck. This is just a 0.3% boost compared to the $57.4 billion in sales that analysts are expecting from the stock in 2022. But this is just one indication for Merck, and the company has demonstrated itself to be very competent in getting tons of indications approved for its products.
A cheaply priced growth and income stock hybrid
At the end of the day, Merck is a blue-chip stock that could fit in almost any portfolio. If you're looking for a growth stock, Merck's 9.4% annual earnings growth prospects over the next five years are materially higher than the 7.2% drug manufacturers-general industry average. Value investors would be pleased with Merck's forward price-to-earnings ratio of 11.7 since it's in line with the industry average of 11.3. And income investors will rejoice over the stock's safe, market-beating 3.3% dividend yield.